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Finance Minister Arun Jaitley on Sunday called for the creation of a favorable environment to improve the credit capacity of banks and provide liquidity to the market, at a time when the government has suggested a series of Reserve Bank of India (RBI) measures to improve the cash flow of the economy.
"A strong banking system will be able to improve credit in sectors that need it. MSMEs (micro, small and medium enterprises) need credit. NBFCs (non-bank financial corporations) need credit because they finance a large portion of their loans and their lending capacity can not be reduced, "said Jaitley, adding," The power of the banking system needs to be improved. Banks must be able to make loans to maintain the liquidity of the market.
Jaitley was speaking at the 100th anniversary celebrations of the Union Bank of India in Mumbai, organized by the state, by videoconference. The minister said the immediate objective of the government was to strengthen the banking system, underlining the fact that he had pledged to inject nearly 3 billion rupees into the recapitalization of banks over the next few years. last four years.
In the same case, Minister of State for Finance Shiv Pratap Shukla said that "one or two institutions weaken the banks", without referring directly to an institution. "But banks have to show courage and progress," he said.
The Minister's comments come at a time when the RBI and the government are witnessing a tense relationship that has spread to the public. The RBI showed signs of discomfort after the government made the decision, earlier last month, to invoke a rare provision under the law on the RBI to open the dialogue on a dozen questions for which he seems not to agree.
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Among the various suggestions, the government notably asked the RBI to have a special refinancing window for NBFCs , a mechanism allowing banks to raise $ 30 billion and a review of capital standards
Highlighting how the recapitalization exercise put in place by the government helped the banks from the public sector to come out of a "difficult" phase and improving lending capacity, Mr. Jaitley said that "the whole system" was necessary to ensure the availability of liquidity in the market and that the lending capacity of banks is strengthened.
"The future of our economy and its growth depend on this lending capacity, so we have to target within ourselves and in our policies … the whole system must be targeted at to improve the credit capacity of banks and the availability of liquidity in the markets, "said FM. He added that this would boost economic growth and help the government generate more income and reach the poor.
He stated that PSBs had a heavy responsibility in a competitive environment, as they could not rely on retail banking as their counterparts in the private sector. "It would have been an easier way to go," said Jaitley, adding that banks lent to all sectors of the economy, in addition to expanding its network across the country and strengthening its network. performers (NPA) in the banking system to support growth.
A dozen suggestions made by the government to the banking regulator will be discussed at the next meeting of the central Boa's board of directors. November 19 of the RBI.
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Some other suggestions related to the application of Basel III standards to banks that are not active in the economy. international. , creation of capital buffer in times of stress, need to maintain the RBI capital adequacy standards at 1% above Basel III standards, effectiveness of the framework providing for corrective measures banks to restore banks' health. [19659002] The government had initiated a dialogue on these issues through a series of letters sent to the RBI in October, citing the consultation process provided for in Section 7 of the RBI Act. According to him, the central government can give instructions to the RBI because it may "deem necessary in the public interest" after consultation with the governor of the RBI. Article 7 deals with the "management" of reference products and has never been invoked by the government to invoke instructions to the regulator.
Jaitley also stated that the implementation of the Goods and Services Tax (GST) was a "monumental reform" that had disrupted economic growth for only two quarters, hitting critics and cynics "who accuse him of harming the economy.
RBI Governor Raghuram Rajan has blamed the indirect tax reform, which came into force on July 1, 2017, the slippage of the market. growth of India. Jaitley did not name Rajan.
"There will always be critics and cynics who will say that (GST) is slowing down India's growth," said Jaitley, speaking at a video conference celebrating the 100th anniversary of the Union Bank of India, organized by the state.
After suffering for two quarters, the Prime Minister said growth had increased to 7.7%, 7.7%, and 8.2% in the last quarter. This increase is significantly higher than that of 5% to 6% achieved in 2012 and 2014.
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