New Delhi, March 12 Reserve Bank of India (RBI) Governor Raghuram Rajan on Saturday kept the cards close to his chest on possible easing of monetary policy with rate cuts, but said the government\'s decision to stick to its fiscal targets was comforting.

\"The 3.5 percent number (fiscal deficit as a percentage of gross domestic product) is what he had in mind. Both the markets and the RBI have been comforted by that. How it will reflect on the monetary policy, you will have to wait and see,\" Rajan said.

The first bi-monthly monetary policy update for 2016-17 is due on April 5.

He was addressing the media, following a meeting of the central bank\'s board of governors, along with Finance Minister Arun Jaitley, his deputy, Minister of State for Finance Jayant Sinha, and top officials from RBI and the government.

Jaitley said in the run-up to the national budget, which he presented on February 29, there were three schools of thought on fiscal deficit -- industry wanted leniency, economists felt that the government should stick to the numbers and some others felt a narrow range was warranted.

\"The way forward is to appoint a small group of experts and only then we will take a decision.\"

Rajan said economic recovery in the country was not smooth, particularly after data on index of industrial production (IIP), released by the Central Statistics Office on Friay, showed India\'s factory output had logged a decline in January for the third straight month.

\"The IIP numbers were somewhat disappointing -- not as strong as we would have liked,\" he said. \"But broadly, we are moving towards a strengthening growth,\" he added.

One of the main topics of discussion at the board meeting was the issue of non-performing assets of banks -- which primarily concern loan defaults and wilfull defaults by industry. The slowing exports -- in decline now for 13th straight month -- was also deliberated upon.

\"Non-performing assets are of two types,\" he said explaining that one is created as the result of a slowdown, which can be recovered once the economy turns around, while the other is on account of individual misdemeanours.

\"We don\'t want to create by overstating these incidents that, in turn, will hamper activities,\" he said, alluding that banks should not be deterred from bona fide fresh lending. \"But the rising levels of NPAs is a matter of concern for all of us.\"

As per recent RBI estimates, the total exposure of commercial banks in terms of gross NPAs, the rescheduled loans and write-offs was 14.1 percent of deposits that works out to around Rs.9,455 billion (around Rs.9.5 lakh crore).

The government is also facing flak following the unexpected exit of industrialist Vijay Mallya from the country, even as a consortium of 17 banks led by the State Bank of India, were seeking repayment of around Rs.9,000 crore that he has borrowed from them.

Rajan skirts rate cut talks, but comforted by fiscal targets