There is a need for Indian banks to focus on core banking operations such as lending to small and medium enterprises (SMEs) and taking deposits, former RBI governor Y.V. Reddy said.

“At a time when banks all around the world are moving towards their basic function of lending and taking deposits, there’s pressure on Indian banks to enter bond markets and money markets,” Reddy said. “Banks need to get their priorities right.” He was addressing students and media personnel at a session on ‘Challenges facing Indian Business’ at the University of Hyderabad.

Reddy said interest rates are expected to harden globally as central banks in countries across the world tried to fight inflationary pressures. “Balancing the fragile economic recovery even while keeping a lid on prices of essential commodities remains the biggest challenge facing most central banks including India’s,” he pointed out.

On the issue of withdrawal of stimulus measures announced by the government to tackle the economic slowdown, Reddy said there could be a partial withdrawal of some measures.

“India is in a better position to handle the vicissitudes of the financial crisis. There’s no doubt about the surety of India’s long-term growth story as its fundamentals remain very strong,” he added.

Speaking on the problems plaguing India’s agriculture, Reddy said the biggest issue facing the country’s farmers was the risk involved in farming due to irregular monsoons and erratic power and irrigation systems. “Agriculture is in danger of becoming unviable due to the lack of a proper risk mitigation system,” he said.

Reddy also said that wholesale price index is not the proper measure to calculate inflation, and the consumer price index (CPI) should be used for the purpose. RBI used the CPI for inflation assessment, he added.