The Reserve Bank of India (RBI) is open to feedback on its draft project finance circular, which is being discussed and analysed, governor Shaktikanta Das said here on Thursday.
The regulator, he said, has adopted a consultative approach towards forming the final guidelines and all feedback is being taken on board. The draft guidelines essentially prescribe that lenders must maintain 5% provisions for loans towards under-construction projects and gradually lower the provisions as the project enters operational stage.
“Any financing by a bank has to be sustainable. The model of financing should not be subject to any kind of unmanageable risk. Every risk has to be properly assessed and provided for,” Das said, responding to a query on whether the provisioning guidelines would lead to hike in project finance loan rates.
On interest rates, he said even as India’s headline inflation is moderating, it remains above the central bank’s target of 4%, and it is too pre-mature to even think about repo rate cuts at this juncture.
“At any point of time when everyone talks about interest rate cuts, there are silent depositors who get affected in different direction. The last inflation print (Consumer Price Index) was at 4.7% and June inflation…is likely to be close to 5%. So when we are at 5% inflation and our target is 4%, I would feel it would be too premature to talk about interest rate cuts,” Das said in an interview to CNBC-TV 18.
He added that while there are certain central banks who give forward looking guidance on rate cuts, the RBI would not venture into such commentary as the global economic situation is quite uncertain.
“We would not give any guidance which would lead the market players and stakeholders to board the wrong train,” he said. The RBI’s six-member monetary policy committee (MPC) had increased benchmark policy rate by 250 basis points (bps) between May 2022 and February 2023 to 6.50%.
While the MPC has maintained status quo on repo rate since then, two external members of the MPC—Ashima Goyal and Jayant Varma—voted for a 25 bps cut in the repo rate in the last MPC meeting held in June.
The RBI’s FY25 real GDP growth rate forecast of 7.2% is also “very much achievable”, Das said, as agriculture and manufacturing sectors are performing well. While urban consumption growth remains strong, rural demand is picking up and forecast of good monsoons further bolsters India’s GDP growth rate outlook.
On the banking regulations, the governor said that the RBI is in final stages of issuing the final expected credit loss (ECL) provisioning norms for banks, and that the rules will be issued in the current fiscal.
Speaking about the recent regulatory actions against some banks and shadow lenders, Das said the regulator will take every preventive measure to ensure financial stability. “Let me say that we are very accessible today. The amount of accessibility that banks, NBFCs or other sectors of financial sector have towards RBI, it is very high,” he said.
The central bank has also been constantly engaging with lenders to improve their technology infrastructure to keep pace with rising digital transactions, he added.