Joel Rebello

Mumbai: After surprising the markets with a 50 basis point hike in cash reserve ratio (CRR), Reserve Bank of India governor Y V Reddy spoke to reporters at the central bank's headquarters. Excerpts.

On global risks and inflation

There are global risks like rising oil prices and it is possible that underlying inflation develops due to the global situation. Global uncertainty requires greater vigilance. We should be in readiness... by we I mean the corporate sector, banks, public policy and the RBI each partly with our responses.

The financial markets should be prepared for any unconventional response (from the RBI) for dealing with shocks.

On options before the RBI

Many countries like New Zealand, Australia, China and Indonesia are also facing this problem of capital inflows. We are using some ideas from abroad and are adding our knowhow. All options are ready - we will use them if there is a need.

On home loan rates

Some banks are changing home rates unfairly. In the absence of a benchmark floating rate (as in overseas markets), banks are pegging loan rates to a rate determined by themselves.

There are provisions for banks to change the fixed rate and to increase the tenure. Technically this may be correct but it is not appropriate. We will ensure that certain one-sided rates are not used. Banks have to explain and justify any revision in rates. They have to ensure systematic trial provisions to roll back rates too. We are pursuing banks to do this. It's a delicate balance . we do not want to do a micro balance of interest rates.

On growth and inflation

Reforms and markets are not the end, it is growth and stability. We were able to bring inflation down from 6% and I am sure through fiscal and monetary policy, we can go to 4-4.5%. One job of the central bank is to peg inflation and we believe in targeting numbers.

On RBI's stand on P-Notes

The RBI stand on P-Notes is well documented. They are not desirable. We took a stand some years ago and it is the same.

On credit and deposit growth

We are advocating a reasonable balance. It is possible that there may have been some over correction, but the situation is better than 1.5 years ago.

On recovery agents

We are hoping that out threat will work before we act. At lunch time some banks assured me that they will look into it. But we have put them on notice.

Banks are learning. They have a right to recover money but if they are using recovery agents who are behaving in an inappropriate way and it could lead to a police complaint then we (RBI) are also responsible to see that does not happen.

On account closure charges

I don't understand why banks can't just close an account without charging a fee. This account closure fee has to be withdrawn. If any bank has any difficulty in doing this, they are free to contact us.

Source : DNA