‘As FSDC comes,we need to set up boundary lines’

The finance minister has made a clear announcement about it in the budget speech. He defined its mandate in broad terms. They said they will put out a discussion paper. The finance minister was kind enough to come and have a discussion with our board. He said FSDC will add value and not replicate what was being done by any other existing structure. In the budget speech itself,he said that FSDC will not compromise on other regulators. I have no reason that will be the case.

There are different regulatory models. All these models were tested during the financial crisis. I don’t believe HLCCM should have executive powers. A body with executive powers could not have solved legal issues. Because an executive power means you are accountable to the parliament. That’s an issue. It has got to refine its (HLCCM) working. As FSDC comes,we need to set up boundary lines.

Do you think the rise in asset prices has led to bubbles in the economy?

Equity prices rose by 80 per cent. Gold prices are at an all-time high. Real estate prices in several cities are at pre-crisis levels. There is an

asset price build up. But I won’t call it a bubble.

What’s the RBI’s stand on exchange rate management?

We are watching the exchange rate closely. There’s a view that we’re letting the rupee appreciate as an anti-inflationary measure. That’s not correct. Our policy is that we do not target a specific rate or band. We will intervene to manage volatility and in order to ensure there’s no disruption in the macro-economic stance.

The RBI has cautioned about the impact of rising capital inflows. Is the RBI thinking of imposing tax on capital inflows?

This question has been debated before. It’s important ever since crisis started gaining and the emerging market economies were confronted with managing capital inflows. It’s important to recognise that we have been traditionally using both price-based and quantity- based measures for managing capital inflows. It’s not as if Tobin tax will signal shift from quantity-based measures to price-based measures for managing flows. Even now we have price-based measures like the NRI deposit schemes or the automatic route. We are not at the moment considering Tobin tax. When we see it’s necessary,we will resort to this measure.

There was expectation that the RBI will rein in exposure to the real estate companies by hiking the provisioning norms. But this has not happened…

There was an expectation. We raised provisioning norms in the October policy. We consulted commercial real estate associations. And we looked at numbers. Tightening of provisioning norms had a restraining impact on bank exposure to the real estate sector. We are watching the situation. Somewhere down the line we may take action… I don’t know. But we did not consider it necessary to take any action as part of this policy.

Last time the RBI tightened the policy when the growth reached 9 per cent. This time,you have started the battle (against inflation) though the growth is yet to reach that level. What’s your view?

It’s a dynamic situation. Last time,there was high growth,relative stable inflation and large capital inflows. Now we have a recovery,high inflation level… fiscal consolidation has just started and capital inflows that we talked about. It’s a different economic situation.

Banks are continuing with teaser loan rates despite the RBI’s apprehensions. What do you say about this?

What we have said is that banks must be transparent about this. The banks must explain to the borrowers about the implications of the interest rate structure. I hope they are following it. It’s an important thing to be provided.