RBI watching Fed move, fiscal spend: Raghuram Rajan

On rate cut by banks
I understand that it takes time for banks to make adjustments and bring down rates. RBI reduced the repo rate in January, we waited for three months for them to bring down the rates. I didn't expect they will do it in March as they didn't have much room to bring down their base rates. I had hopes that they will bring down the rates in April, which they did as they had room for the same.

On rate-cut outlook
A proper impact of the 50 basis point repo rate cut is yet to come. ICICI Bank has cut its base rate by 25 bps. Looking at the competition in the market, sooner or later, banks will have to bring down their base rates. As there are other institutions providing loans at lower rates, for instance corporate loan is being given at the rate of 7.5%. With such a situation, how long can banks hold such high rates? They will have to maintain a balance, not reducing rates even after three months is not good.

On cost of funds
Banks are saying that people don't want floating rates on deposits. Banks need to market the concept of floating rate on deposit. Fixed deposit rates leads to asset liability mismatch. This is one of the reasons why lending rates are not going down. Banks around the world are following floating deposit rate. Argument of banks that people are not agreeing on floating rates on deposits is really not welcome.

On further RBI rate cuts
RBI has already cut the repo rate by 50 bps. We'll see the effect of unseasonal rains. Also, even because of Iran deal prices of crude may come down. If that happens inflation will go down and so will interest rates.

On inflation
We hope that inflation in August will be at 4% and the reason is the base effect. In March it can be between 5.8% and 6%. If inflation comes down, we might cut rates. Apart from inflation numbers we need to also keep an eye on Federal Reserve rate and fiscal spending to take a call on rates.

On Modi govt's one year in office
In the past one year a lot of progress has been noticed in the economy. The amount of stalled projects has gone down from the earlier Rs 8 lakh crore to Rs 5-6 lakh crore now. New projects are have also started which is a good sign. Apart from that, even the work done by the Modi government on coal auction and spectrum auction was really good.

On Moody's upgrade
Although it is difficult to say whether Moody's, Fitch or S&P will upgrade the rating. Moody's has just upgraded the outlook. I just know that we are on the right track of growth. We need to work a lot and there is at lot to do for next 10 years. Work is pending on industrial corridors and other big projects. Without worrying on the upgrade we need to focus on the projects which are yet to completed.

On monetary policy committee
There's a need to change the RBI Act if we want to empower the monetary policy committee. And to change the Act is a big thing. An amendment can be done after thinking over it. The issue of monetary policy committee is not on our urgent list at the moment. I feel that it will be good combination if this committee is a mix of RBI officials and outside experts.

On banking system
Banking industry in India is going through a dynamic phase. There is a need of more activity in Jan Dhan accounts. I think that financial inclusion will be in place within two to three years. Main issue in the village areas is that mostly there are cash transactions. We need to connect them to banking and mobile companies can contribute very well for this.

On dna's report on Rs 27,000 cr bank frauds
I will have to examine this issue. Frauds keep on happening in the banking system, it is important to investigate them. After proper investigations people who have done this fraud will be put in jail. We are working on an investigative framework, which will help in easy reporting of such frauds. Sometimes not everything can be considered as fraud, people tend to forget the difference between NPA and fraud. Mostly, NPAs are not frauds. Weak economy results in increase in NPA. Banks should immediately report the frauds. They should take fast action irrespective of whether it is done by an in-house person or an outsider.

On global economy
According to me, world economy is weak. US is doing good, but first quarter was not that sound. Euro zone is coming out of recession, I expect that there can be recovery in euro zone by 1% - 1.5%. Japan's recovery is consumption based and it is slowly recovering. I feel that China's growth might go below 7%. Hence, the world is looking towards India and we should work towards it by proving ourselves.