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Taking on critics of his monetary policy, Reserve Bank Governor Raghuram Rajan today blamed the record low credit growth to the stress in public sector banks and not due to high-interest rates.

“I will argue that the slowdown in credit growth has been largely because of stress in the public sector banks and not due to high interest rates,” Rajan said in a speech on Resolving stress in the banking system organised by the industry lobby Assocham here this evening.

At the same time he underlined the need for bank lending to the industry, saying “we absolutely need to get public sector banks back into lending to the industry and infrastructure, else credit and growth will suffer as the economy picks up.

“It is not the level of interest rates that is the problem, instead, the loans already in public sector banks balance sheets are stressed, and therefore their unwillingness to lend more to those sectors to which they have high exposure,” Rajan emphasised.

He kept the rates high, citing inflationary concerns despite intense pressure from the finance ministry and the industry for softening them with a view to boosting growth. Rajan began the process of lowering the rates only in January 2015 and since then it has come down by 1.50 per cent to 6.50 per cent.