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Domestic banks to raise more capital to fulfill loan demand, says RBI Governor Shaktikanta Das

source:rnatime:2023-12-03 13:19:05

Shaktikanta Das, governor of the Reserve Bank of India (RBI), stated in an interview with Zee Business on Friday that domestic banks should raise additional capital in order to be ready for worst-case situations given the hazy nature of the global financial climate.  “We have to think of the worst and do our best. We have to envisage the maximum amount of stress and do our best. They should always be prepared. Based on these analyses, banks should raise capital,”  Governor said in the interview. “Another point I want to make is about loan growth that we are seeing currently. If banks are to sustain lending within this loan demand, they will have to raise additional capital.”  He also added that banks need to raise more capital in order to fulfill the loan demand which is increasing at a reasonable speed.  The governor noted that both state-owned and private banks have contributed significantly over the last two years by using the markets to generate money and said that overall, banks' capital adequacy levels are acceptable. Speaking about the views of the RBI regarding the strong momentum of credit demand, he stated that the trajectory was based on slower growth over the previous year and gave the assurance that the RBI keeps track of any instances of excessive lending by any sector, including traditional banks, NBFCs, and small financial banks. “If there is excessive lending in any sector, we analyze it… we ask them to see if it’s too much, give us a report, and review it. Risk assessment and risk management need to be done. We caution banks from our side on risk management and risk assessment,” Das said in response to a query about robust growth in retail lending. The proportion between lending rates and deposit rates When asked about it, the governor stated that while it has frequently been seen that once lending rates are raised, EMIs also rise right away, deposit rates do not rise proportionately in the same way. In response, Das said that the RBI's implementation of external benchmarking ensures that the difference between the two rates is kept to a minimum. Additionally, deposit rates are rising as well. "The rates at which banks offer loans are linked to lending rates. They work in tandem and increase or decrease in proportion to the lending rate or the rate at which banks offer loans," said the RBI Governor.   "This further puts pressure on banks to raise funds, which they do by increasing deposit rates. This has been happening and deposit rates will continue to rise in almost the same proportion to the lending rate hike," he added.   Inflation and Growth Speaking of inflation, he claimed that it had peaked in India. Global influences are currently having a significant impact on Indian inflation. The governor emphasized that the top bank's first priority is to combat inflation. They will work to minimize the impact on growth, though."We will keep monitoring it and take the necessary action as and when required," he said. Regarding the depreciation of the Indian rupee, he said that it had declined less than other currencies and that the capital adequacy ratio of the bank had also increased. Governor believed while India’s 13.5 % GDP growth in the first quarter of FY23 was lower than the RBI’s projection of 16.2 %, the economy is still reflecting recovery. They were determining the cause of the slower development than expected and striving to make improvements. “Economic activity has revived quite a bit and is recovering. We are trying to ensure the least sacrifice for growth. Industry, services, and credit growth is good. Q1 GDP was lower than estimated. We are studying why. Two or three areas have been identified,” he said. Forex Reserve The Governor told us that significant forex inflows occurred over the preceding two to three years when discussing India's foreign exchange reserve. Since inflows and outflows are common, we established reserves to protect against global shocks. There is nothing to worry about. According to Das, the Indian rupee has been losing value over the past few months as a result of the dollar's rise, and it has outperformed many other currencies, such as the British pound and the euro.

Domestic banks to raise more capital to fulfill loan demand, says RBI Governor Shaktikanta Das