Rajan's Unfinished Agenda: Five takeaways from RBI's monetary policy

Even as there is a raging debate over Raghuram Rajan's extension of tenure, the Reserve Bank of India (RBI) Governor, who  is completing three years in September this year, has listed out short term and long term reform agenda at the second bi-monthly monetary policy 2016-17 on Tuesday.

Development Of Corporate Bonds Market: RBI Governor Raghuram Rajan on Tuesday listed development of corporate bonds market. "We intend to move as fast as we can  to remove the impediments," said Rajan.  The corporate bond market is big globally and in the emerging market, but  in India, the debt market is dominated by the sovereign papers especially central government paper and state development loans (SDL). As per the CRISIL statistics, sovereign  paper contributes 72 per cent of the outstanding debt as on December 2015. The corporate bonds have a share of 28 per cent. In fact, this small share in the market puts a large burden on the banks as corporate have no option but to go to the banks for their funding needs.

Financial inclusion: Rajan said we need to do more  in the financial inclusion area. In fact, the payments banks model is all set to roll out  with eight players to make their debut. Rajan would be keen to watch their progress  and fine tune the guidelines for better institutional framework to address the financial inclusion issue. In fact, the full scale banking model hasn't achieved the desired results.
 
Make lending to SME  more effective: His focus is on making lending more effective to small and medium enterprises. The small finance bank initiative  is expected to reach out to the semi-urban and rural areas as most of the micro finance  lenders would be transporting their MFI model to banking.  

Move inflation to a comfort level: In  the short term, Rajan wants to move inflation towards more to a comfort level in the band as suggested by the Urjit Patel committee report. In fact, the CPI is already in the bank of below 6 per cent. The target is 5 per cent by March 2017. Rajan wants inflation to remain in a low band  for a sustainable long term growth in the economy.

Cleaning up the banks' balance sheet: His another short term agenda is to fast clean up the banks' balance sheet so that they can fund growth. Rajan has already set the March 2017 deadline for banks to make the provisions for potential bad assets. The process is already on as many banks are  reporting losses. He is open to ideas for other funds taking over the stressed assets. In fact, that's a decision banks have to take, but Rajan wants a clean balance sheet and is no mood for any forbearance.