RBI Governor SHAKTIKANTA DAS and Deputy Governors MICHAEL DEBABRATA PATRA, MAYANK JAIN, M RAJESHWAR RAO, and T RABI SANKAR spoke to the media following the announcement of the monetary policy resolution about a variety of topics, including the cancellation of the G-SAP program and the involvement of Big Tech in banking. Edited passages:

What was the justification for ceasing further G-SAPs?

Das : G-SAP is not currently required. However, moving forward, G-SAP is very much an option, along with alternatives for operation twist and open market operations. The overall quantum entering under our fixed reverse repo window is currently around Rs 4-4.5 trillion, and even in the first week of December, that quantum is anticipated to be around Rs 2-3 trillion. Therefore, the drop in liquidity. is not significant.

Would you prefer to employ “surprise” as a weapon for policy as a central bank?

Das: No one was surprised. The intervention is not unexpected. The road map I outlined for the 14-day variable rate reverse repo (VRRR) auctions is currently at Rs 4 trillion; the notification for it was released yesterday (Thursday). It will increase by Rs 50,000 crore every two weeks, reaching Rs 6 trillion in the first week of December. The general strategy is gradualism. The subsequent 28-day VRRR deployment and subsequent fine-tuning procedures will be based on the changing circumstances. Therefore, I disagree that what we have done is surprising. A precise, calibrated road map has been provided.

Have the banks disclosed all of the portfolio stress? Do you believe that a regulatory road map on climate change risks is necessary?

Jain: Despite having liquidity buffers and robust capital, banks and other financial institutions have experienced only mild stress. This is despite the epidemic. We are keeping a careful eye on the rise in stress in MSME and retail credit. Wherever such stress build-up has been noticed, the RBI is also holding special meetings and discussions with the top management of banks, small banks, and NBFCs.

Climate risk is still in its infancy, in my opinion, and there is currently a discussion about who should be in charge of it: the government or the RBI. ? Nevertheless, we have started a number of initiatives to comprehend how regulatory policies on climate risk change over time.

Rao : We have internalized the need to address climate risk and have joined the network of financial institutions committed to being green. We are also participating in the numerous working groups that NGFS has established. Internally, we have established a sustainable group. The goal is to take a thorough look at this matter and produce some sort of guidance note in a short amount of time.

Would you please provide a timeline for the inclusion of Indian bonds in the The VRRR cutoff has been set at 3.99%. Do we interpret it as a signal?

Das: The major index providers are currently in an advanced level of discussion on this issue. The government and the RBI have ongoing conversations with the service providers. There are some problems, but they are being fixed. It ought to occur within the upcoming few months.

Patra: In essence, we are in a passive mode. After presenting the 14-day reverse repo auctions, we will take the market’s offer, and in doing so, we will learn the market’s estimate of the cost of surplus reserves.

What would indicate to the RBI that it is OK to start backing down from the emergency levels since you cannot abruptly remove this level of liquidity ?

Patra: We’d be on the lookout for indications that the recovery is becoming firmly established and that the inflation rate is edging closer to the target. As a result, we are considering journeys rather than destinations. We will therefore be triggered even by dynamic moves in these directions.

The RBI is taking a methodical approach. First, liquidity is stopped; second, liquidity is transferred from fixed-rate reverse repo to auctions. We gain from the auctions in two ways: first, they allow for better pricing of excess reserves, and second, they provide the RBI greater freedom in managing liquidity, which improves its control over these reserves. Let me reassure you that the RBI has all the necessary tools for the upcoming steps. Instruments are not the problem; timing and calibrations are.

We are firmly pausing, but at the same time, the reports that recovery is taking place and that the inflation is declining. Are there any inconsistencies there?

Das: No, there is absolutely no conflict. inflation and growth-related developments are dynamic and constantly changing. We will attempt to move forward in a calibrated manner, without causing any disturbances, and get as close to 4% as we can (inflation target).

Additionally, growth has resumed in other categories. The rise is discernible in certain high-frequency indicators but not in others. We are looking for indicators of development that will become established and demonstrate durability. The RBI is a body that aims to reduce inflation. However, during the past 1.5 years, we have faced a unique circumstance that called for unorthodox and creative solutions. We shall proceed gradually. Because we need to go to the shore, which is visible, and because there is a journey beyond the shores, we don’t want to upset the boat.

You noted the necessity for calibration of fuel-related indirect taxes. But the government’s side hasn’t made any progress on this.

Das: There is ongoing communication between the government and the RBI on this subject as well as several others where government action is required. We occasionally express all of our suggestions and worries. The government has taken a number of actions in relation to edible oil, pulses, and other supply-side elements. We have highlighted the problems with gasoline and diesel; the government now has to weigh all the information and make a choice.

Due to excessive liquidity and a lack of loan growth, banks like SBI have been complaining about the mispricing of credit risks. Is this a troubling pattern?

Das: I don’t believe SBI has reported this as an issue. They have indicated that it is an issue, which banks should take attention of. Whatever the liquidity situation, it is up to the banks to evaluate the risks involved in lending money and set loan prices accordingly. Therefore, banks are the scene of the action.

Is RBI at ease with giving tech behemoths access to their front-end platform to advertise its products?

Rao: Central banks all across the world are paying attention to the introduction of Big Tech into the financial sector, which is a global phenomenon. We are also looking at the problem from the perspective of its regulatory ramifications.

Some banks have shut down their ATMs as a result of penalties for downtime. What is the answer to this issue?

Sankar: The purpose of the fine was to make sure that ATMs were accessible in locations where there was less interest in them. We have had a variety of responses. We’re attempting to review it and determine the best way to put it into practice. But the reason we issued the circular was to make sure that there was money available.

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