Viral Acharya stirs hornet’s nest on his last day at RBI; flags govt borrowing squeezing companies

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Updated: Jul 23, 2019 1:54 PM

RBI deputy governor Viral Acharya, who relinquishes office today six months ahead of the end of his term, has flagged excessive government borrowing, which he says can make the road difficult for the corporate sector.

Viral Acharya, RBI, Central Bank, tenure, policy rates, government borrowings, debt, market, corporates, PSU, public sectorViral Acharya had requested to exit his tenure at the central bank by July 23, six months ahead of his term-end, citing personal reasons.(Bloomberg image)

RBI deputy governor Viral Acharya, who relinquishes office today six months ahead of the end of his term, has flagged excessive government borrowing, which he says can make the road difficult for the corporate sector. Flooding debt market can make the loans expensive for corporates, Viral Acharya said at an event. He pointed out that relative to output, India’s borrowing has ranged between 67 per cent and 86 per cent since 2000, which is higher than many emerging markets. Viral Acharya raised a concern about the safety and liquidity premium of the high-rated corporate bonds. High debt makes these bonds less sensitive to interest rate cuts.

Further, Viral Acharya added that the Government should cut back on subsidies and schemes that can not impart long term growth, and instead, the centre should divest from public sector units as more private sector investment in PSUs (public sector undertakings) can bring more efficiency. 

Viral Acharya had requested to exit his tenure at the central bank by July 23, six months ahead of his term-end, citing personal reasons. He had a run-in with the government after his now-famous October speech, where he warned that governments which do not respect the autonomy of central banks invite the wrath of the markets. In several speeches he delivered recently, Viral Acharya referred to RBI’s autonomy. One more issue he raised repeatedly was recapitalisation of public sector banks. He also mentioned in the past that the merger with weak banks makes the acquirer weak too, amid the government plans to consolidate PSU banks by merging weak banks with strong banks.

However, differing from Acharya’s opinion on bank recapitalisation, Governor Shaktikanta Das said in a recent interview to Bloomberg that the continuous and prolonged dependence on recapitalisation can make these banks inefficient in the long run. Shaktikanta Das said that the banks should try themselves to raise additional capital from the markets.

Previously, Urjit Patel, ex-governor, RBI resigned from his post nine months before his scheduled term, after continuous friction with the Government over RBI’s autonomy and bank recapitalisation. Also, Urjit Patel’s stand on adopting accounting standards based on International Financial Reporting Standards and stiff BASEL-III norms tightened the situation with the Government as it required more capital with the companies.

 

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