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November 17 2018
Strengthen PSB boards, IMF tells govt.
09 August 2018

‘Steps needed to enhance the efficiency of bank operations and foster more disciplined lending’

India needs to improve the way state-owned banks are run by bolstering board-level autonomy, the International Monetary Fund (IMF) said in a report, adding that the government should consider eventually privatising them.

“[A] key area of reform is to strengthen governance in public sector banks,” Ranil Salgado, IMF mission chief for India, said in the report on Wednesday.

“This is needed...to improve incentives to enhance the efficiency of bank operations and foster more disciplined lending practices by banks. A first step would be to strengthen the quality and independence of these banks’ boards, and privatisation could also eventually be considered.”

Projecting India’s economic growth to recover in 2018/19 and strengthen in 2019/20 as stability-oriented macroeconomic policies and progress on structural reforms continue to bear fruit, the IMF said that high foreign reserve buffers and strong FDI inflows had helped contain external vulnerabilities.

“However, more can be done to sustain the recent foreign direct investment inflows and remove trade barriers — which remain significant,” Mr. Salgado said. “These include: reducing trade documentation requirements and procedures, lowering tariffs, continuing to improve the business climate, and improving governance.”

The IMF said risks to the outlook were, however, tilted to the “downside.” The Fund listed “higher global oil prices and tighter global financial conditions” as key external risks that had grown in recent months.

“Domestic risks include tax revenue shortfalls and delays in addressing the twin bank-corporate balance sheet problems,” the IMF added.

‘Tighten policy’

The Reserve Bank of India (RBI) would need to gradually tighten monetary policy further due to rising inflation, driven mainly driven by higher oil prices and a falling rupee, the IMF said.

The RBI raised the repo rate for the second straight meeting last week by 25 basis points to 6.5%, while warning about the inflationary pressures.

The average inflation is likely to rise to 5.2% in 2018/19 from a 17-year low of 3.6% in the previous fiscal year, the IMF said.

“The RBI will need to gradually tighten policy further, in response to inflationary pressures, which will help to build monetary credibility,” the IMF said in its report.

The IMF projected global crude oil prices to average $72 a barrel in 2018/19, up from $62 in its earlier forecast.

 

 

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