RBI, Govt not antagonistic to each other, says PC

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Finance minister P. Chidambaram on Sunday rejected the perception that his ministry and RBI were at loggerheads over interest rates and other issues, and said that they were not ‘antagonistic’ to each other.

"The equation between the government and the central bank in India is the same as the equation between the government and the central bank of any country. It is always arguing for growth on the part of government and arguing for stability and taming inflation on the part of the central bank," he told PTI in an interview.

Even as the government makes out a case for the central bank to support growth, it doesn't mean "they (the finance ministry and the RBI) are antagonistic to each other", he said. "What we are trying to do is to argue our case, argue the case for growth, argue the case for taming inflation and then of course whatever the judgement is arrived at...," the Minister added.

Emphasising that the relationship is no different between these two entities in any other country, Chidambaram said that during his recent visit to Mexico city for G-20 meeting, along with RBI Governor D. Subbarao, he had ‘spoken to several governors and several finance ministers, the relationship is exactly the same’.

Despite the Finance Minister coming out with a fiscal consolidation roadmap and addressing central bank's concerns over government finances, the RBI did not reduce the interest rates in its half-yearly credit policy review on October 30.

RBI Governor D. Subbarao has maintained that inflation at 7.45 per cent is still ‘quite high’ for he central bank to go in for reducing interest rates.

However, the Finance Ministry is concerned over slowdown in the economic growth with the industrial output turning negative in September by 0.4 per cent.

Chidambaram said the RBI itself has held out expectation of an interest rate cut in January, 2013.

The last monetary policy review 'seems to indicate signs of some rate cut" when the RBI reviews it next in January. "That's what the paragraph seems to indicate so let's look to that future," he said.

On the issue of granting new bank licences, Chidambaram said it can be done even before the passage of Banking Laws Amendment Bill pending before Parliament.

"The conditions are already there...the powers are already there in the RBI Act, in the Banking Regulation Act and the power of licencing. You can always put whatever you want to put as condition of licence," he said.

The finance minister said the amendment in the law would be effected by the time the RBI receives first application for the new bank.

RBI Governor D Subbarao had said on Friday that the enabling conditions have to be fulfilled for grant of licences for new banks.

Major industrial houses, including Anil Ambani-led Reliance Group and the Aditya Birla Group, have evinced interest in entering the banking sector.

The announcement to grant licences to private entities to start banks was made in the last Budget by the then Finance Minister Pranab Mukherjee. The RBI had granted the last banking licence only in 2004 to Yes Bank.

At present, India has 27 public sector banks, 7 new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, 4 local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.

Asking lenders to restructure loan of the stressed sectors, Chidambaram said 'a bank cannot do business only when the times are good, banks must also do business when times are difficult'.

"When times are difficult, accounts will become NPAs but then the RBI allows NPA accounts to be restructured," the Finance Minister said, adding, this has been done in the past and it is being done in various countries.

"You restructure the account, allow more time for the loans to be serviced and allow the industry to pick itself up and go forward," he said.

"These are difficult times, banks must handhold industries. I am not talking about specific units, I am
talking about industries. May be one or two units which are wilful defaulters, we are not talking about them. Sectors must be handheld so that sector will pick up," he added.