‘Won’t pull out liquidity’: RBI tries to calm bond mkt nerves

Central bank governor welcomes blockchain tech, but voices major concerns on cryptocurrency

The Reserve Bank of India (RBI) once again urged cooperation from bond market participants for the “orderly evolution of the yield curve”.

The central bank governor, in an interview with CNBC TV18, said the bond market should not worry about liquidity support, while avoiding to comment on whether the 6 per cent yield for the 10-year benchmark is the tolerance limit. “The overnight liquidity window is there. The market is assured that liquidity will be there.”

The normalisation of liquidity stance, by introducing variable rate reverse repo, is part of the normalisation process everywhere and in no way signals the intent of the RBI to drain the system of liquidity, said Shaktikanta Das.

The 10-year bond yield inched up to 6.16 per cent, from 6.14 per cent before the interview was aired.

According to Das, the central bank welcomes blockchain technology, but has problems with cryptocurrencies. “We have some major concerns about crypto that we have shared with the government.”

The RBI is working on a digital currency, but “lots of loose ends need to be tied up”. He did not want to commit to a timeline for introducing the digital currency.

A report on flexible inflation targeting will come in the next few days, the governor said, adding inflation expectations are “well anchored” at this moment.

Dismissing the need for another asset quality review (AQR), as suggested in the economic survey report, Das said the large loan database of the RBI enables it to monitor exposure and status of loans almost on a real-time basis, and the supervisions have enhanced substantially. At the time of the last AQR, there was no CRILC information database with the RBI.

“Our (supervision) methodologies and approach are far better now. Whenever we see a particular sign of stress, we immediately advise the banks to work on it," the governor said.

On the question of industrial houses getting banking licences, the governor did not want to give a clear answer, but said whoever meets the fit-and-proper criterion of the RBI will get a licence. Privatisation of banks is a government decision and the Bank Nationalisation Act has to be amended for that, which is being worked on by the government.

He said the bidders must be financially strong to ensure that the banks have robust risk buffers.

The RBI governor said it is not in the interest of the emerging market economies to stop accumulating reserves.

Despite entering the US government’s watchlist of ‘currency manipulator’, the RBI’S reason for foreign exchange accumulation is to guard the system against sudden volatility such as those witnessed during the ‘taper tantrum’ episodes in 2013.

ON DIGITAL CURRENCY

“THE RBI IS WORKING ON IT, BUT LOTS OF LOOSE ENDS NEED TO BE TIED UP”

ON AQR

“NO NEED FOR IT…

OUR (SUPERVISION) METHODOLOGIES ARE FAR BETTER NOW. WHENEVER WE SEE A PARTICULAR SIGN OF STRESS, WE IMMEDIATELY ADVISE THE BANKS TO WORK ON IT”