?Signs of revival are not robust yet?

What are your major concerns on economy now?

There are many crucial factors that would concern the economy in the days to come. Some of them are non-oil imports, credit growth and inflation. We debated quite a lot within the RBI about what our growth estimate should be. Take into account everything and in spate of transparency, we have indicated a growth projection of 6% with an upward bias. However, there exist few factors that would affect the projected growth rate in future. And, they are rainfall and agricultural output, manufacturing and services sector performance export performance, global economic recovery and investment demand.

Most bankers have said that the demand for credit is picking up on the back of demand from projects, and housing and retail. However, some bankers said that even sanctions have increased, the disbursements have not picked up yet.

How do you see the liquidity situation going ahead?

In the month of January, RBI for the first time put out a programme for liquidity management along with the government borrowing programme. And, we did this in order to mange market expectations taking into account the extraordinary anxious sentiment in the market. We have continued that practice in this new fiscal year.

We have given out the programme for OMO and for MSS unwinding, which is again given in the policy statement. We will follow that calendar. However, it is very difficult to predict a liquidity situation. We do our own projections and we have an idea. Should we deviate from our projections, we will tailor our OMO programme accordingly. Our intent has been to convey the fact that we want to give you as much certainty we have and we cannot give you anymore certainty that we have currently on this issue.

We have Rs 1,20,000 crore in the reverse repo window everyday. There are several special windows for refinance of NBFCs, mutual funds, exports and small industries. These are extraordinary measures and we need to withdraw them. Most of them are closing by March 31, 2010.

Do you see rates rising as a result of large government borrowing programme?

It will be both inappropriate and improper for me to speculate on the path of future policy rates. I cannot speculate on the interest rate regime. There has to be emphasis on the quality of fiscal adjustment. We all know that we are having a structural fiscal deficit.

I do not expect the market borrowing programme to be larger than what has been already announced. Should there be any further requirement of borrowing, I do not know. However, the government is very cautious about fiscal need for consolidation.

Do you think economic revival is taking place?

There are signs of revival but they are not broad-based. They are too tentative as of now to be taken robust signals of revival. There are concerns about inflation. The message hence is that there is a need to be concerned and be vigilant about inflationary pressures building up.

Taking into account the successful experience of a number of countries, we had designed the restructuring mechanism. The purpose behind this restructuring is not to hide the loans which are inherently unviable but to help give the liquidity support to otherwise viable units. There is hence sufficient risk management mechanism behind the restructuring process. However, the fact of life remains that some of the restructured loans could get sour in future. That is our assessment too.

There might be more NPAs in the Indian banking system, than we would like but they would be well within the acceptable limits as conveyed to me by the bankers. At the moment, we are not looking at extending the norms for restructuring the bad assets.

We do know that 75% of bank loans are given at sub-BPLR rates. It could hence influence the weighted cost of lending. I wish I could definitively say that the worst in the economy is finally over because nobody is able to say that everything that needs to come out from the international financial institutions has come out.

How do see return on forex reserves?

We have an active management policy on foreign reserves. The returns on our forex reserves have been higher than most other economies.

How much capital infusion you think state-owned banks will require?

We do have an assessment and are working with the government on the amount of capital required by PSU banks. I am told that this figure is not in the public domain yet. We do not have robust employment figures. This is one of the lacunae of the Indian statistical system as earlier.