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RBI ready for Fed rate hike aftermath: Raghuram Rajan

Kolkata: The Reserve Bank of India (RBI) said on Friday it would look at the way banks use regulations meant to help them tackle a crippling bad debt burden, as concerns grow that lenders are using the measures to camouflage troubled loans instead. “We don’t have any independent estimate, but looking at the market our sense is there is a 70-75 per cent probability of the US Fed raising rates”. Earlier, RBI deputy governor Urjit Patel said “after analysing the language used by Fed”, it is nearly certain that the United States central bank will increase interest rates next week.

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The governor said RBI is prepared for “any eventuality” arising out of the Fed’s decision during its December 15-16 policy meeting, although “one cannot be completely confident that what could happen”.

“The markets have already factored in the possibility of a rate hike”.

Most banks have resorted to strategic debt restructuring (SDR), which helps them convert part of the debt into equity and allows the debt to be categorised as “standard”, thus extending the asset classification by 18 months.

Rajan, though, disputed this saying, “In many cases the banks have attempted to take action, there have been many impediments. Over time, we need to increase the power of the banks so that they can recover the money”, he said.

The implementation of the Goods and Services Tax (GST) will be good for the economy, said RBI governor Raghuram Rajan. “The final structure that will come out will not be onerous on banks”, he said.

Acknowledging that Indian banks had the right kind of leveraging, he added that those who said that the banks had no capital requirements were not sensible.

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Regarding today’s board meeting, Rajan said that discussions were held on global and domestic economic concerns as well as financial literacy. “All instruments are available to us and we will continue to keep the market plentifully supplied with the appropriate amount of liquidity”, he averred.

Reserve Bank of India Governor Raghuram Rajan listens to a question during an industry event in Mumbai