Priority sector lending norms to get relook: Rajan

'CAD at comfortable level, yet risks persist'

The Centre has asked the Reserve Bank of India (RBI) to look into the prospects of easier subsidiary norms for foreign banks operating in India, RBI Governor Raghuram Rajan, who was in Kolkata to attend the 549th Central Board Meeting of the RBI on Thursday, said.

Talking to reporters on Thursday, Rajan said priority sector norms for foreign banks are being reviewed at the “request of the ministry”. “We’re in talks with the government to review priority sector lending norms for foreign banks operating in India. The Finance Ministry has asked us to look into this and devise a plan on how this can be done,” Rajan said.

Foreign banks operating in India have been resisting the government’s move for some time to make them follow subsidiary norms, which will essentially make the banks follow a more stringent protocol.

Rajan had sent out a strong signal in April this year, pointing out that large foreign banks will have to operate as wholly-owned units for better regulatory control. He had urged these banks to be responsive to local regulations and warned that the central bank was ready to wield a stick, if a “carrot does not work”.

He stated that large foreign entities need to be responsive to regulations in India.
The RBI had released a framework for large foreign banks with over 20 branches in November 2013 to convert into wholly-owned subsidiaries.

The RBI chief further said that he expects growth to go back to 6 per cent plus, in “in the mid-sixes”, by the next fiscal. While it would need a “lot of work on everybody’s part”, Rajan said that India would benefit from the softening of the international crude prices.

He added that despite the current account deficit widening in the July-September period, the RBI is “comfortable”. While he admitted that there were risks, he expressed confidence in the situation.

“RBI will keep a watch on the direction,” he said. RBI officials pointed out that India’s current account deficit (CAD) widened to 2.1 per cent of the GDP in July-September, which was higher than the previous quarter as well as a year before. Rajan said that as inflation comes down, fixed income securities would become “more attractive” as investment options than gold, despite liberalisation of gold import norms.

Calling restrictions on gold import as an interim measure, because it “cannot have been sustained for a long time,” he said, “So, no better time to relax those restrictions.”
Meanwhile, a controversy emerged with Chief Minister Mamata Banerjee skipping her customary meeting with the RBI Governor for the second year.