Reserve Bank of India (RBI) governor Shaktikanta Das on Monday said that the central bank is keen on linking banks' new loan rates to the repo rate or to external benchmarks and will take necessary steps to formalise the same.
The governor said that several banks have linked loan rates to repo rate post the August 7 policy and added that he expects interest rate transmission to be faster going forward.
Das said that growth is a matter of highest priority today for the central bank, the government and the business community.
While addressing a press conference, which was focused on financial stability, Das said that India's banking system is more resilient to external economic shocks. However, weaker than expected global growth is one of the risks to financial stability, he added.
"Recent developments in the global economy should be seen in this perspective. A weaker than expected growth with signs of slowdown in major economies, as projected by multilateral institutions like the International Monetary Fund (IMF), is one of the key risks to global financial stability at this juncture," Das said.
The Indian banking sector's profitability has been lacklustre despite strong capitalisation as it faces competition from fintech companies, said the governor. Hence, banks need to capitalise on technological advances, added Das.
Das said that headwinds to financial stability can emerge from credit markets, financial markets, external sector and payment systems.
He expects the gross NPA ratio to decline significantly by March 2020. He also noted that there is a need for governance reforms in PSU Banks and said that the central bank has sent the government recommendations regarding the same.
Talking about NBFCs, he said that the implementation of reforms is not complete and remains uneven especially in the sector. Das added that the central bank is keen on taking any step to ensure financial stability.
"With a view to strengthen the sector, maintain stability and avoid regulatory arbitrage, the Reserve Bank and the government have been proactively taking necessary regulatory and supervisory steps," said Das.
"We want to ensure we have an NBFC system that is robust and stable," he added. The NBFC sector constitutes 25 percent of the combined financial services sector in India.
"RBI has been constantly monitoring top 50 NBFCs, HFCs. Our endeavour is to avoid the collapse of any major NBFC or HFC," the governor further said.
Das also said that the country is trying to move participation of non-residents to on-shore market. "Will make on-shore market more attractive and have more transactions there."
