"Hopefully by the end of the year we think the economy is on course to come down to a CPI inflation rate of about 8 percent, and by the end of next year to a level of 6 percent, and we are certainly determined to make sure it follows this glide path," Rajan said in a speech in the southern city of Chennai on Thursday.

An RBI panel in January recommended bringing consumer price index (CPI) inflation down to around 8 percent by the end of January 2015 and to 6 percent by the end of the following year.

Rajan's comments came on the same day when Finance Minister Arun Jaitley unveiled his maiden budget, pledging to stick to the fiscal deficit target of 4.1 percent of gross domestic product announced by his predecessor at the interim budget in February.

Rajan added bringing down inflation was the responsibility of both the government and the Central Bank, echoing previous ones he has made on the topic.

The Central Bank Governor also noted the RBI would "shortly" issue circulars regarding banks' lending for infrastructure projects.

‘Too early to declare victory over NPA battle’

While talking about the grave issue of high non-performing assets (NPA) in the system, the Reserve Bank Governor said that it is too early to declare victory over the NPA battle, which will improve only with an uptick in growth expected during this fiscal.
"I think, the most immediate problem we have to confront is that of rising level of stressed assets in the banking system. Fortunately in the last quarter those levels of stressed assets tapered off or flattened out. But, it is too early to declare victory," he told reporters.
As of March 2014, total NAPs stood at a high 4.4 percent for the system, with multiple analysts fearing it will go up further.
Rajan, who has initiated a slew of measures, including asking banks to work together to spot and resolve asset stress early, said the remedy for this lies in "stronger governance actions" like clearing projects and growth numbers inching up faster.
"Growth bails out lot of past bad decisions. So I believe that as growth comes back, and I fully expect that growth will be stronger over the course of the year, that some of the bad assets will turn back performing," he said.
It can be noted that lenders, especially the public sector banks, are saddled with a high amount of asset stress due to a slew of problems including economic gloom, projects not getting cleared by the executive and also some judicial interventions like the ban on mining.

Commenting on the early detection and redressal of NPAs which incentivises banks to detect an issue early and also includes penalties for being late, Rajan said it is still early days for the system but bankers have informed him that promoters are finding it difficult to con the lenders now.
On the movement of the rupee and the level where the RBI would like the currency to be, Rajan said the rupee is holding on to a level currently and RBI will not be "too interventional" in the market.
He, however, added that it will work towards reducing volatility in the currency in either direction.
Soaring oil prices

On the concerns about the oil prices adding to inflationary pressures, Rajan said crude prices have stabilised after hitting a high of USD 116 a barrel and added that RBI will be vigilant on the issue.     

With the funding needs of the infrastructure sector pegged to over USD 1 trillion during the ongoing 12th Plan period, Rajan underscored the need for developing right models to ensure credit flow to the sector.

The RBI Governor added that the Central Bank will soon be coming up with some guidelines which will make the '5/25 loans' to the infrastructure segment feasible.
"We are shortly going to come out with circulars describing how we will make feasible 5/25 loans to infra sector going forward. That is something on the cards," he said, addressing a Ficci Ladies Wing event later in the day in the Southern metropolis.
He added that banks need to improve on their project evaluation skills which will help during the due diligence stage for a loan proposal so that the loans are structured in such a way that there is no stress to the bank even if economic conditions worsen.



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