MUMBAI: New RBI governor Raghuram Rajan on Wednesday came out with a slew of mea

sures, including more trade settlement in rupees to rescue the battered financia
l markets and hinted at a shift in focus from inflation control, doggedly pursue
d by his predecessor, to boosting growth.
Shortly after he took over as the 23rd governor of the central bank, Rajan, 50,
addressed the media with a prepared statement in which he laid out a detailed r
oad map for his innings in the short term, which he called a "big initial packag
e."
He also rescheduled by a few days the date for his much- anticipated first monet
ary policy statement to September 20.
The new governor set up a number of committees for revising and strengthening m
onetary policy framework, financial stability, financial inclusion, NPAs and an
outside panel of experts headed by former governor Bimal Jalan to screen applica
tions for new bank licenses.
Rajan said the new bank licences will be issued around January next year.
Apparently reflecting a shift in the approach from his predecessor D Subbarao,
who had serious differences with the government of late, Rajan said the primary
role of the bank is monetary stability to sustain confidence in the value of the
rupee.
"Ultimately, this means low and stable expectations of inflation, whether that
inflation stems from domestic sources or from changes in the value of the curren
cy, from supply constraints or demand pressures.
"... but we have two other important mandates; inclusive growth and development
, as well as financial stability," he said.
Asked about Subbarao's focus on targeting inflation, Rajan said he would reserv
e his comments till September 20.
Rajan said the bunch of reforms has been unveiled today to enhance growth.
"I think there are so many low-hanging fruits in the economy that if we only pl
uck them we can accelerate growth substantially."
The former IMF chief economist and economic advisor to the finance ministry sai
d there were some positive developments in the economy which will help to boost
growth.
The measures disclosed to support the rupee include liberalisation of the finan
cial market by enhancing the limits for exporters to re-book cancelled forward e
xchange contracts and opening a special concessional window for swapping foreign
currency non-resident (FCNR) deposits and dollar funds.
"My sense is that we certainly don't need false optimism. But I think there is
good reason to believe that in the medium run, the future of the country is stro
ng," he said.
Asked about Standard & Poor's downgrade threat, he said the international ratin
g agency "nearly reiterated what has been its long standing claim about there be
ing one-third possibility of a rating downgrade ... it is not something new. So
I won't read too much into the statement."
The measures announced by Rajan include enhancing the re-booking limit on cance
lled forward exchange contracts for exporters to 50 per cent, extending a simila
r facility to importers and introducing cash settlement in 10-year interest rate
future contracts to develop the money and G-sec markets.
Rajan indicated the RBI will take steps to reduce the statutory liquidity ratio
(SLR) and introduce greater regulatory and supervisory control over the domesti
c operations of foreign banks. He promised to give freedom to banks to open bran
ches without prior RBI permission.
The new RBI chief also said he will steadily liberalise the markets and lift re
strictions on investment and position-taking, together with Sebi, and will exami
ne introduction of interest rate futures on overnight interest rates.
While the RBI has enhanced the re-booking limit on cancelled forward currency c
ontracts to 50 per cent for exporters, importers will be allowed a 25 per cent l
imit.
The central bank will push for more trade settlements in rupees and open up the
financial markets for those who receive rupees to invest it back in.
Rajan said the RBI will raise the overseas borrowing limit of 50 percent of uni
mpaired Tier I capital to 100 per cent for banks and will introduce cash-settled
10-year interest rate future contracts.
The central bank will also examine introduction of interest rate futures on ove
rnight interest rates; steadily but surely liberalise markets, restrictions on i
nvestments and position-taking; and issue inflation-indexed savings certificates
tied to CPI to retail investors by end November.
He stressed on the need to reduce the requirement for banks to invest in govern
ment securities in a calibrated way and will push foreign banks to set up wholly
owned subsidiaries.
Rajan proposes to collect credit data, examine large common exposures among ban
ks and encourage banks to clean up their balance sheets.
Referring to the announcements, he said, "This is a part of my short-term time-
table for the Reserve Bank. It involves considerable change, and change is risky
. But as India develops, not changing is even riskier. We have to keep what is g
ood about our system, of which there is a tremendous amount, even while acting d
ifferently where warranted."
He also announced a committee headed by RBI Deputy Governor Urjit Patel to stre
ngthen monetary policy framework. The panel will submit its report in three mont
hs.
Rajan said that a committee under former Governor Bimal Jalan would screen bank
license applicants after an initial compilation of applications by the RBI staf
f.
He said new bank licences will be announced "within, or soon after, the term of
deputy governor Anand Sinha, who has been shepherding the process. His term exp
ires in January 2014."
Financial sector expert Nachiket Mor will head a panel to suggest steps to prom
ote financial inclusion. Another committee, to be headed by deputy governor KC C
hakrabarty, will take a close look at rising NPAs and suggest steps to improve t
he recovery of bad debts.
"While the resumption of stalled projects and stronger growth will alleviate so
me of the banking system difficulties, we will encourage banks to clean up their
balance sheets and commit to a capital-raising program where necessary. The bad
loan problem is not alarming yet, but it will only fester and grow if left unad
dressed," Rajan said.
Stressing that India is a fundamentally sound economy with a bright future, the
new RBI chief said, "Our task today is to build a bridge to the future, over th
e stormy waves produced by global financial markets. I have every confidence we
will succeed in doing that."