Euro crisis may trigger more capital flows into India: RBI

India is likely to see more capital inflows as investors may find the Indian market an attractive destination, especially in the backdrop of uncertain global markets, Reserve Bank of India Deputy Governor Usha Thorat has said.

“Money probably tries to come to places where it gets better returns. So, from the point of view of capital flows, you do have the likelihood of more uncertainty in the rest of the world and therefore more money coming to India,” Thorat told reporters here.

Foreign institutional investors have so far invested around $5 billion (Rs 23,350 crore) in the domestic share market as against a total investment of $17.45 billion (Rs 81,491 crore) in 2009. Policy makers, worldwide, are watching the developments associated with the euro zone crisis, which broke out after Greece nearly defaulted on public debt. Some of its neighbouring countries face similar issues.

To avert the deepening of the crisis, euro zone countries and the International Monetary Fund announced a $1-trillion rescue package to bail out Greece. RBI, unwinding the monetary stimulus, faces the dilemma of hiking policy rates while the recovery is still nascent.

Noting that India was getting increasingly integrated with the global economy, Thorat said this made the country less immune to developments happening abroad. Thorat said the growth in developing countries like India and China had been good, backed by recovery in industry and services sectors, although the country’s agriculture output is yet to pick up.

Replying to a query, Thorat said Indian banks’ asset quality was healthy and “there is nothing to worry”. Many banks, including the country’s largest, State Bank of India, have witnessed a rise in bad loans after the financial downturn that affected the ability of customers to repay loans.

RBI, which is slated to announce its quarterly review of the annual monetary policy on July 27, is widely expected to hike its short-term lending and borrowing rates (repo and reverse repo) by 0.25 per cent but may leave the mandatory cash reserve ratio — the amount banks have to park with the central bank — untouched, as cash conditions are tight.