Raghuram Rajan’s swansong policy review

• Comfortable with NPA clean-up so far
• Won’t allow foreign deposit redemptions to disrupt market

 Allaying fears of market disruption in view of USD 20 billion worth of redemptions in foreign deposit accounts in the coming months, the Reserve Bank today said it will continue with domestic liquidity operations and foreign exchange interventions to ensure smooth repayments.

In the Third Bi-monthly Policy Statement for 2016-17, RBI Governor Raghuram Rajan said that as regards the management of the imminent FCNR(B) redemptions, the central bank has been frontloading liquidity provision through open market operations and spot interventions/deliveries of forward purchases.

“The Reserve Bank will continue with both domestic liquidity operations and foreign exchange interventions that should also enable management of the FCNR(B) redemptions without market disruptions,” he said.

Raghuram Rajan today said he is comfortable with the stressed assets recognition process undertaken by the banks in the process of cleaning up their balance sheets.

“Broadly speaking we are comfortable with the recognition process that banks have certainly taken. Some banks have taken more steps than we required them to take. So, the culture of cleaning up (of balance sheet) seems to be well embedded as well as a culture of recovery on some of the loans,” Rajan, who will be demitting office on September 4, told reporters during his last post policy meeting with the reporters.

Incidentally, this would be the last monetary policy meeting by the governor as the next policy will be by the Monetary Policy Committee, which will have three nominated members from the government and an equal number from the Reserve Bank including the Governor.

In the December monetary policy statement, Rajan had set a deadline of March 2017 for banks to clean up their balance sheets.

“I want to put something like March 2017 on the table as when we hope that a full clean-up will have been done,” Rajan had said.