RBI Governor Calls Upon Bankers To Be Positive And Optimistic Amidst Challenges

Reserve Bank of India Governor Mr Shaktikanta Das inaugurated FIBAC 2019, the Annual Banking Conference, jointly organised by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks' Association (IBA). In his inaugural address, Mr Das observed that although growth takes the highest priority at this juncture in the country's economy, financial stability is very important to sustain long term growth.

"Today we are all aware that there are challenges which the business community is dealing with in the real economy; there are global headwinds emanating from issues like trade tensions, geopolitical tensions and several other things happening around the world; and there are challenges which the Indian banking sector is also encountering," he said.

Speaking about the resolution of the Monetary Policy Committee, Mr Das recalled that the Committee specifically mentioned that growth is the highest priority. RBI has taken a number of steps to inject growth impulses in the country. "Having said that growth is a matter of highest importance, it is also important to look at issues of financial stability, because long term growth can be sustained only by stability of the financial sector." Hence the focus of the RBI and the Government are to allocate economic resources efficiently, manage financial risk and ensure that industry has the capability of performing even in the presence of external financial shocks.

RBI Governor pointed out that today the Indian banking system is more resilient to economic shocks. "Aspects of non-bank financial intermediation that contributed to the financial crisis have declined. However, the implementation of reforms is not yet complete and remains uneven, especially in the non-banking space."

He cautioned the gathering that weaker than expected growth is one of the key risks in global financial stability. The cardinal principle, he said, is that "the regulator never sleeps." They need constantly to be vigilant and take proactive steps. Excessive credit growth, maturity mismatches and liquidity issues, high proportion of non-performing loans and over-leveraging are some of the factors that can pose an overall systemic risk even if individual institutions are robust. These aspects become very important as India marches towards becoming a $5 trillion economy.

He also mentioned that the NBFC sector complements the banking sector and is a bridge for last mile connectivity. The entry of non-traditional and digital players is creating a web of inter-linkages that RBI is keeping close watch on. RBI is taking proactive steps to strengthen the sector. He further observed that some banks have announced that they are linking their lending rates with the repo rate with respect to new loans. "Our expectation is that they should move faster," he said. RBI is also endeavouring to ensure adequate liquidity in the system to meet the production requirements of the economy. The risk weights that banks attach to loans have reduced from 125 per cent to 100 per cent. This is bringing them closer to the Basel norms that prescribe 75 per cent.

Finally, he called upon bankers to be positive and optimistic amidst the challenges they face. He observed that the global economy is running into severe headwinds. "India cannot be an exception," he said, appealing to the leaders of the business and financial fraternity to focus on the opportunities that lie ahead.

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