Inter-regulatory dialogue must: RBI

The Reserve Bank of India (RBI) has called for interaction among regulators of various countries to deal with systemic risks arising out of complex and interconnected financial entities.

“The presence of complex and interconnected financial entities across several jurisdictions with regulators at the national level has posed huge challenges in ensuring that there is no regulatory arbitrage and that there is coordination amongst regulators,” Usha Thorat, deputy governor of RBI said in a speech delivered recently in Singapore.

“It is recognised that all regulators have to deal with systemic risk and there is need for inter-regulatory dialogue and vigilance,” she said.

Noting that savings are increasing in the western world and consumption is increasing in the East, Thorat said Asian and Latin American countries had learnt lessons from their own past currency and financial crisis and had build up reserves and consciously developed financial markets.

“They (Asian and Latin American countries) have been careful to ensure that their banks are not involved excessively in toxic assets or innovative transactions. Even so, the countries have had to face the consequences of falling global trade and GDP and unemployment and slowing credit growth. Macro economic imbalances continue though they have reduced,” she said.

Thorat said though the current global financial crisis significantly affected India, the impact was less than many other countries primarily owing to high savings rate leading to a balanced macro economy.

At present, India's saving rate stands at over 37 per cent while investment rate is at 39 per cent. The curbs on capital account, dominance of domestic expenditure and small current account deficit have also helped India in limiting the impact of the financial crisis, the deputy governor of the central bank pointed out.

“Nevertheless, the impact has been felt by the domestic credit equity and (forex) foreign exchange markets leading to slowing down in the growth rate and employment generation. Still, the country is the second fastest-growing economy in the world with over 6 per cent growth projected for the current year,” Thorat added.

India recorded about 9 per cent growth for three consecutive years since 2005-06 but the growth rate fell to 6.7 per cent during 2008-09 owing to the impact of the global financial crisis.

India recorded a growth rate of 6.1 per cent during the first quarter of this fiscal.