RBI governor allays concerns over capital inflows

The Reserve Bank of India (RBI) today allyed concerns about capital inflows building an asset bubble and said it is keeping a vigil on these.

"If there is too much liquidity, it has the potential for asset price build-up," RBI Governor D Subbarao said.

However, "every asset price build-up need not necessarily result in a bubble", he told reporters after a meeting of RBI's central board of directors here.

Subbarao said that capital inflows were in line with the country's requirement.

The surge in capital flows was not like what happened between 2006-08, he said, adding "If and when there is excess of capital flows, we will have to respond to that situation."

Subbarao said it was not possible at this point of time to speculate on what if anything the apex bank would do to contain the quantum of capital inflows.

The RBI yesterday tightened the guidelines for corporates raising resources from external commercial borrowings.

Subbarao said corporates were now able to raise resources from non-debt sources.

On loan growth, Subbarao said that credit offtake would grow.

He said non-food credit demand had grown by 10.4 per cent.

On the ECB guidelines, Deputy Governor Shyamala Gopinath said these were relaxed during the time of economic crisis.

"Spreads had gone up at that point of time." But with things coming back to normal, the spreads had now narrowed. "So we have reverted to what was there prior to the relaxation," Gopinath said.