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IMF says India needs to address banking crisis to support investment, welcomes RBI's repo rate hike

IMF says India needs to address banking crisis to support investment, welcomes RBI's repo rate hike

The International Monetary Fund (IMF) has said addressing the ongoing crisis in the banking sector was important for India to support investment and inclusive growth agenda.

The International Monetary Fund (IMF) has said addressing the ongoing crisis in the banking sector was important for India to support investment and inclusive growth agenda.

"Addressing the banking sector balance sheet issues and improving the performance of particular public sector banks is a very important issue for India to support investment and its inclusive growth agenda," IMF Spokesman Gerry Rice told reporters at his bi-weekly news conference.

Responding to a question on India's banking crisis, he said the authorities have made progress in addressing the stock of non-performing assets and were taking further measures to deal with the flow problem.

"These steps include the recognition of these non-performing assets, the resolution framework under the Insolvency and Bankruptcy Code. It's in an early stage, but we think that's an encouraging development," Rice said.

He said it was a positive step as a more proactive approach was being taken to identify and closely monitor asset quality issues.

These needs to be complemented by further governance reforms in this area, especially regarding the public-sector banks to materially improve risk management and operations, he added.

"But we welcome the authority's intention to make public sector bank recapitalisation contingent on measures to strengthen governance and operations and encourage the accelerating implementation of the ongoing reforms," Rice said.

The IMF also welcomed the decision of the Reserve Bank of India (RBI) to increase the repo rate by 25 basis point to 6.25 per cent.

"We welcome the Reserve Bank of India's decision to increase the policy rate by 25 basis points," IMF Spokesman Gerry Rice told reporters during his bi-weekly news conference here.

In the context of rising inflation and additional upside risks to the forecasts due to higher oil prices, exchange rate depreciation and other domestic factors, the IMF thinks that this was an appropriate step by the RBI on Wednesday, Rice said.

He was responding to a question on the decision of the RBI to increase the interest rate for the first time in the last four years.

It was in January 2014 that the RBI had increased the repo rate to eight per cent to keep the inflation under check.