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Amid slowdown, RBI Governor hints at softer approach on rates
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SME Times News Bureau | 19 Aug, 2019
Indicating a softer approach on rate cuts in the wake of economic
slowdown, RBI Governor Shaktikanta Das on Monday said growth is the top
priority at a time when the Indian banking system is facing many
challenges.
In his inaugural address at the Indian Banks'
Association annual flagship conference, FIBAC 2019, here, the Reserve
Bank of India (RBI) Governor also said the real test for public sector
banks (PSBs) is their ability to tap the capital market to raise funds.
"Growth
is the top priority today, but it is important to look at financial
stability along with growth. Business community is dealing with real
challenges in the economy. The MPC (monetary policy committee) finds
growth to be the highest priority at this juncture", Das said.
The BSE Sensex at 37631.50 points at noon on Monday was up 0.75 per cent .
In
its fourth consecutive bi-monthly monetary policy rate cut made ealier
this month, the RBI lowered the repo rate by an unprecedented 35 basis
points to 5.4 per cent.
Das said he expected banks to move
quicker on linking the lending rates with the RBI's repo, or shor term
lending rate for commercial banks, towards better transmission to
support consumption and demand.
"The real test For PSBs is the
ability to access the capital market. Increasing currency and debt
crises globally adds headwinds to financial stability. Weaker than
expected global growth is one of the risks to financial stability. There
are global headwinds from geopolitical and trade tensions", he said.
Underlining
the need for a robust non-banking finance company (NBFC) system, the
Governor said the RBI is exploring the regualtory changes needed for
housing finance companies (HFCs) and has sent suggestions on PSB reforms
to the government.
"We want to ensure a robust and stable NBFC
system. The size of NBFC sector forms 25 per cent of combined financial
services in India. The RBI is also analysing the regulatory changes
needed for housing finance companies", he said.
"RBI stress
tests indicate that NPAs (non-performing assets or bad loans) may
decline by March 2020 and the central bank is keeping close watch on
inter-connects between banks and NBFCs", he added.
He also said
that although state-run banks' profitability has been lacklustre despite
strong capitalisation, the banking system in India is resilient enough
to withstand external economic shocks.
The Indian economy is in
grip of a severe slowdown, while the domestic automobile sector is
facing its worst crisis in 20 years.
TSociety of Indian
Automobile Manufacturers (SIAM) reports that 300 dealerships have shut
down in recent times. Sales of cars, tractors, two-wheelers have
declined considerably. SIAM said about 10 lakh jobs have been hit in the
auto component manufacturing industry.
The health of real
estate, which is a massive indicator of the state of the Indian economy
and has links with about 250 ancillary industries like bricks, cement,
steel, furniture, electrical, paints, among others, is causing major
concern. Due to demand slowdown both the sectors have seen huge build-up
of inventories.
The fast-moving consumer goods (FMCG) companies
have reported decline in volume growth in the April-June quarter. While
the labour force survey, released by the government in July, showed a
record high unemployment rate of 6.1 per cent for 2017-18, a recent RBI
report does not present a brighter picture.
The RBI consumer
confidence survey showed a drop in consumer confidence in July on
account of a pessimist outlook on job creation and on the overall
economic scenario.
Amidst all the gloom, foreign portfolio
investors (FPIs) continue to pull out from the equity market on account
of a tax surcharge levied in the latest Budget.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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