New Delhi: The move to address the issue of bad loans “head on” was absolutely right, International Monetary Fund Managing Director Christine Lagarde said, lauding Reserve Bank of India Governor Raghuram Rajan’s efforts on cleaning up banks’ balance sheets.
“The fact that the central bank governor is addressing the issue of bank balance sheets head on is absolutely right…equally relevant are various mechanisms that are being worked out with bad loans and distressed assets that are sitting on banks’ balance sheets and are clearly clogging them,” Lagarde said at the IMF’s Advancing Asia Conference here.
She said that since the country’s banking system seems to be well capitalised, this effort to reinforce and strengthen the system is well taken. However, in contrast to Rajan’s Saturday warning, Lagarde favoured continuing unconventional monetary policies in countries where inflation is very low.
Minister of State for Finance Jayant Sinha came in support of Rajan, who had called for a system to assess the impact of unconventional monetary policies of some industrialised nations that can have spillover effects. “We have to be very watchful of spillover effects as countries are pursuing in some cases somewhat more narrower domestic policies, which, of course, have spill over effects across regions across the world that does require significant coordination,” Sinha said at the same event.
Rajan’s suggestion came on Saturday, days after the European Central Bank cut all of its key interest rates, expanded asset purchases and launched a loan programme to pay banks to lend to firms and households whereas the Bank of Japan took interest rates into negative territory.
“Governor Rajan always has interesting proposals and clearly the IMF itself is a good forum for any kind of coordination, consultations between the policy makers and players,” said the IMF chief.
GROWTH, CO-OPERATION Lagarde said the fiscal stance adopted by India is appropriate and the country is mindful of inclusive growth in all respects with the focus on eliminating excessive inequality and including women in the workforce.
On India’s new GDP series, she said: “We have conducted the work and analysis and the answer is very clear. Yes, we do think that it is in line with international standards”.
She welcomed the BRICS Bank and the Asian Infrastructure Investment Bank, saying this is much needed for the region and its investment requirements. Lagarde, however, said it would be better for the multilateral institutions to work together.
“The IMF is a different animal. We are in the business of helping countries in disarray when there is a significant balance of payments issues, when a country is unable to finance or refinance itself, then we are called upon helping.” she said.
Sinha said India is poised to play a bigger role in the world economy. “Now it is India’s turn…like US and China had in the past, we in fact will become a key driver to the global economy and contribute to the global economy as well,” he said.
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