“Nothing is off the table,” Malhotra said in an interview with CNBC-TV18 when asked whether the RBI could consider measures such as the cash reserve ratio (CRR), market stabilisation scheme (MSS) and cash management bills to drain surplus liquidity.
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The RBI’s immediate objective is to ensure that the weighted average call rate remains aligned with the repo rate, he said, adding that excess liquidity was currently keeping the rate lower.
“Some of the liquidity will be withdrawn on its own over a period of time,” Malhotra said, citing currency circulation, foreign-exchange intervention, rising bank reserve requirements and strong credit growth as factors that would absorb liquidity.
The central bank can also use open market operations (OMOs) and foreign-exchange swaps to drain surplus funds, he said.
On CRR, Malhotra noted that the RBI had removed CRR requirements for FCNR(B) deposits and would therefore be conscious of that while considering its options.
Growth-inflation outlook
Malhotra said the Monetary Policy Committee will reassess the growth-inflation dynamics when it meets next month, as higher crude oil prices amid the West Asia conflict pose an upside risk to inflation.
“Crude has gone up,” he said, noting that the average price of the Indian crude basket rose from about $82 a barrel in July to $90 in August. The eventual impact on inflation, however, would depend on the extent of the pass-through.
“The MPC will make a reassessment of the growth-inflation dynamics when it meets in a month or so,” he said, declining to give his own assessment.
The next MPC meeting is scheduled for October 5-7.
Malhotra said the government had absorbed and cushioned much of the crude-price shock, helping the Indian economy weather it well.
$127 billion FCNR inflows
The governor said the $127.22 billion raised through the recently concluded FCNR(B) deposit facility reflected strong global confidence in India’s macroeconomic fundamentals and had helped stabilise the foreign-exchange market.
“It has given us the liquidity at the same time, and it has improved sentiments,” he said.
Nearly half of the FCNR(B) deposits are for a five-year tenor, with about 48.5-50% of the flows in that category. Around 42% are in the three-year to below four-year maturity bracket, while about 9% are in the four-to-five-year window.
Malhotra also rejected concerns that the scheme would prove costly for the RBI, saying the additional foreign-exchange inflows could generate income when deployed in overseas government securities.
India’s external sector
Malhotra said India’s medium- to long-term external-sector outlook remained positive, citing stronger trade agreements, declining energy intensity, robust services exports and healthy remittances.
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He pointed to India’s recent trade agreements and said lower dependence on energy imports would help the current account. Gross foreign direct investment also remained robust, while net FDI was positive at about $7-8 billion in the first three months of the year, he said.
He added that the inclusion of Indian bonds in more global indices could provide further upside to capital flows.
On gold loans, Malhotra said the RBI was watching the rapid growth in the segment but did not see signs of overheating, citing conservative loan-to-value levels and improving asset quality.
Gold-backed loans across banks and NBFCs are now around ₹20 lakh crore, of which NBFCs account for about ₹4 lakh crore, he said. Gross NPAs in the segment were below 1%, at around 0.4-0.5% and improving, he added.