Good Morning. After reviewing the economic outlook and prospects, the Reserve Bank of India cut the policy rate by a further 25 basis points; this means we have cut interest rates by total of 150 basis points since the beginning of the accommodative cycle. Our attention in the recent months has turned to seeing that this large quantum of rate cuts is passed through into borrowing rates. The introduction of the Marginal Cost Lending Rate (MCLR) since April 1st will help. Our first estimate from the 26 largest banks in the system accounting for about 83% of activity has been that since the last week of March, the median overnight MCLR is down by 50 basis points from the base rate and is down by 25 basis points across all tenors. This is important because it means an actual rate cut to the borrower of a further 25 to 50 basis points at least even before today’s rate cut. Put differently, policy action is significantly greater today than just another 25 basis points cut. Borrowing is now significantly cheaper and will continue to get so.

To further this process, a major focus of this policy has been to address liquidity issues. After a detailed review and internal discussions, we brought in significant refinement to our framework including clearer differentiation between the durable liquidity needs of the system and short-term liquidity needs; indicated an intent to move closer to neutral on overall durable liquidity needs; reduce the MSF rate by 75 basis points and increase the rate at which banks can deposit at the RBI by 25 basis points so as to narrow the interest rate corridor; and reduce the minimum daily maintenance of CRR to 90%. All these measures along with the government’s actions on small savings rates should also help continue the process of transmission. In addition to further durable liquidity provision, we have announced an open market operation- a purchase of Government securities of Rs.15,000 crore today.

The monetary policy stance remains accommodative. Going forward we will be looking for further monetary room in signs of good monsoon, further readings of low headline inflation, indications of softening in core inflation and further evidence of transmission of rate cuts.

Part-B of this policy statement also has a number of reform measures including continuing opening up of the banking sector, new market instruments such as money market futures, broadening participation in and easing access to markets such as allowing retail customers ability to trade GSECs and to undertake foreign exchange rates and strengthening financial inclusion through measures such as improving the business correspondent network.

Moreover, in the weeks to come you will see a fulfillment of our past announcements including the release of guidelines for on-tap licensing of universal banks, the start of the trading platform for priority sector lending certificates and the introduction of mobile-to-mobile transfers through the universal payment interface by NPCI.

Finally, the process of cleaning up bank balance sheets is well underway and I am happy with the progress made thus far. My colleagues and I will now take questions.

So on the first question “Has the rate cut been enough?” we think it is what is sensible given the uncertainties surrounding the economy right now. But I think what was important to focus on is what I started with, that because of the MCLR we actually already have a rate cut of 25 basis points to 50 basis points before the policy, and as this winds its way through, the MCLR, over the next few months, we will have more of a rate cut. So do not look at it as 25 basis points, look at the composite of measures they all add up and borrowing rates are coming down significantly in this economy. The effects of the liquidity measures will also help transmission because banks have continuously been saying it is because of liquidity tightness that we cannot transmit. Now we have given them enough liquidity, they have the ability to transmit even more. So my hope is we will see significantly more transmission in the next few months and we have to be careful therefore that we are doing what is appropriate given the state of the economy. On the ‘reasons for excess cash’ we are trying to understand it. Around election time cash with the public does increase, you can guess as to reasons why, we also guess. And you see some not just in the state which is going for elections but also neighboring states. So there is something there, we need to understand it better, but it is about 50,000 to 60,000 crores more than we anticipated at this time of year.

On Panama, we are obviously part of the investigative team that is going to look into these matters. It is important to note that there are legitimate reasons also to have accounts outside, the LRS scheme allows you to take money out, and we have to see what is legitimate and what is not legitimate. That is a process of investigation that will take place.

No. So one is maintaining the deficit at 1%, we would supply that incremental which is needed even to maintain, see balance sheet has to grow even to maintain the deficit at 1%. So that will supply anyway, that take for granted, we will do it on a monthly basis, could be through OMOs, could be through foreign asset purchases. Over and above that, we will try and narrow the gap by doing a little more than that. Lata asked me “How much time will you take to do that?” We will see, but we will do more than is needed on a monthly basis to get the gap closer to zero.

By the way, all of you are getting a very good education in Central Bank balance sheet. It is not something that most people understand, but this liquidity measure requires you to understand that very keenly.

So let me start with Kingfisher. I will ask Khan saab to talk about Panama. First important thing to remember is the regulator does not make a loan. The regulator offers principles on when a loan will be termed a bad loan, an NPA or when forbearance could be exercised, it could be considered a performing loan. So the regulator does not actually make a loan. When the regulator decides whether a loan is deserving a forbearance he does it based on whether he thinks the industry or the sector will broadly recover and therefore the forbearance can be exercised. Now, I have to say that since 2015 we have ended all forbearance. That is why the AQR etc. But at a time when the economy was getting into trouble, the RBI decided to exercise forbearance based on request from a variety of parties including the banks and the government. The important thing was to judge how much forbearance was required in each circumstance for particular industries. Typically the forbearance, was obviously, based on certain signal cases, but was given broadly on principles that the RBI had agreed to. So in the Kingfisher case as well as elsewhere, it was based on estimates of whether the industry would recover or not, just like today for certain metal industries you hear people saying this is a temporary downturn, they will get back, please exercise forbearance. I get a letter a day from people saying this. Similarly, at that time there were letters from the airline industry as well as from the bankers saying, if we hand hold for a little while longer, this will get better. So whatever forbearance and in no circumstance was entire forbearance given or all the requests acceded to. There was forbearance given to some extent in 2010 and whatever investigative agencies will look at that. But I think it is important to put that in the context in which these things take place. Today, the government is helping the steel industry and is working to ensure the steel industry gets back on track. Similarly, the regulator under certain circumstances when an industry is distressed may believe a certain amount of respite might get the industry back on track because converting loans into NPA may in fact chill lending. That is sort of the judgment call that has to be taken at that time.

On the defaulters list, let me ask you. In this room, sometimes you default in a credit card bill. Would you like that credit card default to be put up in public? Many of you bank with public sector banks. Would you like that regardless, you just forgot, it is not that you are trying to make this thing. If every time you defaulted it was put up in public for everybody, your neighbors, your friends, relatives to see and no reason was given, it was just put up that you are a defaulter, you might have some concerns, right. Similarly, what we are saying is the act of default happens in business. Sometimes it is not your own fault. In fact, again I get a letter a day saying it is not our fault, demand is weak, prices are low, there is dumping going on by foreign countries, government permissions did not come through, Supreme Court ruling took away some of these assets because they said ‘null and void this allocation.’ Variety of reasons why a project gets into trouble. To then put the promoter up for all to see that this person defaulted without details of why they defaulted. And the details sometimes are hard for a lay person to understand because they are intricate details. Are you going to go into the business of every promoter to understand why they defaulted? So we have no problem if the intent is to publish wilful defaulter list. That is where the promoter has in the eyes of the bank taken the bank for granted. The bank has gone through a legitimate process to declare the promoter a wilful defaulter. That can be made public. In fact, some courts have prevented the banks from making those lists public. If there is a judgment along those lines we have no problem. But we believe that simply any act of default without understanding, via understanding severity, etc., if it just put out for public to consume, it make create both loss of business as well as undue anxiety and panic and therefore chill business activity. And after all if you are a promoter why would you take any risk if at the slightest chance of default, your name is put up in public for shame. I do not think we want that kind of move. That was our plea to the Supreme Court that “Please, keep this confidential.” There are elements that can be disclosed but let us not disclose everything.