Indian economy showing signs of improvement: Raghuram Rajan

RBI Governor Raghuram Rajan today said there is a need for banks to cut their lending rates anticipating the benefits which will be accruing from the central bank’s rate cuts. It hit a fresh two-year-low of Rs 65.45 against the dollar intraday on Thursday. SBI and other lenders withdrew the offer in 2011 because of concerns at RBI that such loans were riskier and carried a higher probability of default.

Mr Rajan pointed out that the dip is due to the slowdown in exports as there is slower demand overseas. That was the year that credit markets froze after the collapse of Lehman Brothers Holdings Inc.

“I never say no to your ideas. But we will be happy to take a look at it”, he said.

The National Capital Region (NCR) market alone had 1.9 lakh unsold homes as of June, it said. Ltd, Mint reported on 31 July.

“We have also seen certain sectors where a strong currency has hurt us”, he said, while citing the example of cement sector where production has fallen despite a high domestic demand.

Another government official said the central bank was seen by the ministry to have scope to immediately cut at least 50 basis points off rates, now at 7.25 percent.

“Payments bank will ensure more money comes into banking system. Universal banks can do anything the payment bank can do, but payment banks can’t do some things that universal banks can”.

In an interview with Mint in March 2011, then RBI deputy governor K.C.Chakrabarty called the product “riskier” for both customers as well as banks.

Stating the obvious that realty developers should better manage their prices so as to make them affordable to majority of home seekers and that any reduction in interest rates would not help attract buyers to over-priced property.

“Teaser loans have been discouraged by RBI keeping in view the global experience with such schemes, especially sub-prime loans in the US”.

The proposed payments banks will change banking habits in the country as more and more people entering formal banking network would act as a “game-changer” for the economy, Finance Minister Arun Jaitley said on Friday.

While there was a pick-up in the economy, Rajan said Indian exports continued to remain a worry and the RBI would keep an eye on exports in the coming times. “As a result, most banks don’t have any incentive once it’s treated as an NPA to do anything about it”, said Arundhati Bhattacharya, Chairperson, SBI.