Mumbai, Sept 15 (KNN) Reserve Bank of India  (RBI) Governor, Raghuram Rajan today said that since large companies have access to the stock exchange and external borrowing to meet their financial needs, the banks must now shift focus to the MSME sector to fulfil their financial requirements.

Rajan reiterated that Receivables Exchange should be the focus that can help smaller businesses tide over liquidity issues.

Earlier this year, Rajan had said. "If the small business owner is able to raise money against the receivable, it will be much better for the business.”

An exchange can help bring down the cost of such transactions through automation, he added.

While addressing a banking conference organised by FICCI here today, Rajan said that “Select special sectors need ease of credit ... the biggest need for agriculture is long-term money while farmers don't get long-term loans because short-term loans are subsidised.”

He said bankers need to "ask if students studying abroad are more needy?"

“Many sectors in the economy get too little credit.  Solution is to develop the financial framework across the board,” he said.

Interest subventions and loan waiver schemes can distort prices and lead to unhealthy borrowing practices, said Rajan addressing bankers.

RBI Governor pointed out that the loan waivers, as proposed by the Andhra Pradesh Chief Minister, were not healthy for the banking system and could distort prices and the credit culture.

He also said that India's macroeconomic indicators are improving and inflation has been coming down consistent with the central bank's forecast, but Asia's third-largest economy needs investment growth to pick up.

Rajan, however, said Friday's industrial output and inflation data suggested that recovery was "uneven."

Stating that it is not just food prices that are persistently high but even those of other items which remain elevated, he told the bankers, "Inflation is high not only in food, but also in non-food items and the best solution for the country is to bring it down. Then I can cut interest rates."

"I have no desire to keep interest rates high for even a second longer. I want to bring down interest rates when it is feasible and that would be when we have won the fight against inflation," he said.

"There is no point in cutting interest rates to see inflation pick-up again," Rajan said, adding that right now he thinks the central bank is continuing the way it proposed recently.

He has urged the Centre to completely de-regulate diesel prices. "De-regulation will empower state-owned oil firms to change rates in tandem with crude oil prices like in the case of petrol. In January 2013, the government started a phased de-regulation by allowing up to 50 paise a litre increase in diesel rates every month," Rajan said.

On Prime Minister Narendra Modi's newly introduced 'Jan Dhan' scheme Rajan said, "It is a good scheme, its target should be universal reach and not speed and numbers."
Further, Rajan said there was a need to change the management appointment process in public sector banks to make it more transparent.

The central bank is in talks with the government to improve governance in public sector banks, he said. He said problems that have emerged in recent bank scandals were due to outsourced project evaluation. (KNN/SD)