Former Reserve Bank of India (RBI) governor Dr Y Venugopal Reddy has welcomed the recent mega bank recapitalisation move by the Central government as an 'appropriate' decision, while adding that the structural problems in the banking sector still remain.
When International Business Times India met Dr Readdy on the sidelines of Bangalore Literary Festival 2017 on Sunday, he spoke on issues related to banking problems, RBI's relations with the finance ministry and the monetary policy committee.
A well known name in the economic and finance circuit with a global reputation, the former RBI governor said referring to the bank recapitalisation, "The solution that is being done is different, perfectly appropriate. In terms of fiscal and monetary implications, this is acceptable."
But the 76-year-old former central banker, who's known for handling tough situation with ease, explained, "Government's recapitalisation plan will only help banks from chocking, so that banks keep functioning, it is de-chocking, but the structural problem is still there and it needs time to resolve, and the government is working on it."
On the relations between RBI and finance ministry, Dr Reddy said that there is always a room for discussion, it's not a one-way affair.
"I always believe that whatever my thoughts are, I explain it to my bosses, not just in RBI, also as a civil servant. If at all nothing works, if the decision is fundamentally different from my decision, I try to pull myself out from it," the 21st RBI governor said.
Referring to the government's decision on demonetisation last year, Reddy said that the Centre, as a sovereign, had every right to take the decision on demonetisation. He added that, if didn't like the decision, he would have conveyed his professional disagreement over the feasibility of the move.
Post the note ban exercise on November 8, 2016, the former RBI governor had aired his reservations on the move. He told CNBC then, "The institutional identity of the RBI has been damaged. It is not about individuals but about the credibility and reputation of the central bank."
On a question on the current situation of the country's banking sector, especially the public sector banks, the former governor said, "I would like to restrain myself from commenting on these issues, as I'm no more in touch with the data, figures and not aware of the day to day affairs of the banks."
However, Dr Reddy explained, "Non-performing assets (NPAs) is not today's problem, the problem has been accumulated. And currently due the series of events such as demonetisation, GST, bad loans, it gives bigger negative picture." "Even two years back, figures were not that great as it were projected," he added.
On the question of formation of monetary policy committee and its implications, Dr Reddy supported the move saying, "A decision should not left to an individual on a matter of such great concern. When there are two things of monetary policy science and art: science is analysis, forecasting, models and art is the judgement. I think it's better to take a judgement together."
