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India’s world-beating growth pace to continue, says RBI Governor Shaktikanta Das

June 19,2024

Last quarter’s robust economic momentum, which lifted India’s GDP to a world-beating 8.2% rate of expansion in FY24, has continued into the first quarter of the current fiscal, buttressed by several growth drivers, (RBI) governor Shaktikanta Das said Tuesday.

“April and May are over. At Reserve Bank, we have data for June also… we see the momentum is well-sustained and we are, therefore, quite sanguine and optimistic that the (growth) projection we have given for the first quarter of this year – at 7.3% – will indeed be 7.3%,” Das said at an event organised by television channel ET Now on Tuesday.

He said several indicators provided evidence of resilient growth momentum, including higher demand for consumer goods in rural areas and a resumption of much-awaited- evidenced through an increase in the size and number of fixed assets.

Das also expressed optimism in India’s external metrics, saying that the current account deficit for the previous year could potentially narrow to less than 1% of GDP.

“In the first three quarters of 2023-24, the current account deficit was 1.2% (of GDP),” Das said. “Our teams are working on the fourth quarter numbers. They look to be even lower, and when you look at the annual current account deficit number, I will not be surprised next week when we publish the current account deficit numbers – they could be even lower than 1% (of GDP),” he said at the ET Now event.

While emphasising India’s firm growth trajectory, Das said there was no room for complacency on inflation, given that the last mile of bringing consumer prices firmly down to the RBI’s 4% target was turning out to be “sticky, arduous and very slow.”

Consumer Price Index inflation was at 4.75% in May.

Pointing out that food inflation has been near 8% for six to seven months, Das said supply-side factors and extreme weather events had exerted an impact on food prices.

In response to a query on when the RBI may change the current monetary policy stance of withdrawal of accommodation, Das emphasised the balancing act the central bank was playing on growth and inflation.

“If you expect a faster moderation of inflation, then we have to take much more drastic measures in terms of stance, in terms of rate,” Das said. “But then we have to also weigh what will be the growth sacrifice that we would be making.”

Speaking at the same event, Dinesh Khara, Chairman, State Bank of India (SBI), said the ability to source deposits across geographies and products will be the key differentiator for banks, going ahead.

“There cannot be an excess liquidity situation. The RBI has maintained adequate liquidity in the system,” Khara said. “Our ability to source deposits across geographies and across multiple products is going to be the differentiator.”

The bank will expand its asset book in green financing to make up 7.5% of such loans in its advances by 2030, Khara said. He expects the bank’s return on assets to improve to 1.10% by the end of this fiscal, from 1% at the end of March 2024.

Khara reiterated that the bank has enough capital to ensure a 20% growth in loans.

“In the past few years, we have ploughed back ₹1.10 lakh crore from profits and our CET 1 ratio is the highest in a decade. At the current levels we can grow our loans by another ₹7 lakh crore, or 20%, so capital is not an issue. The bank has built enough muscle for growth,” Khara said.

Common Equity Tier 1, or CET1, is a protectionary capital measure introduced last decade to prevent banking collapses through precipitate business cycles.

Source: Economic Times

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