Finance minister Pranab Mukherjee has commended the Indian banking system for displaying resilience during the financial crisis. In a speech delivered at the FE Best Banks Awards function in Mumbai on Saturday evening, Mukherjee also congratulated RBI for doing a good job at aiding, facilitating and regulating the banking system through a period of immense turmoil.
In contrast to the stability and commendable caution exercised by the Indian banking system, the minister listed out what he believed were the major weaknesses of the financial system in the West, which had precipitated the crisis in the first place.
He said the financial system in the developed world had become overconfident and suffered from lack of transparency and inadequate disclosures, particularly in the context of highly structured financial products. Mukherjee went on to mention how misaligned incen- tives had led to a drop in the quality of credit given out and resulted in excessive leverage and risk taking. Eventually the risk was parceled on from one
institution to another and central banks remained out of the loop.
The minister also commented on the coordinated policy actions between governments and central banks within individual countries and coordination by governments across countries. Concerted stimulus packages, in combination with a reduction in interest rates, he said, were now showing positive outcomes with signs of recovery in vital statistics like consumer spending, in the US in particular.
He quoted latest forecasts from the IMF which suggested strong growth momentum in India and China, a rebound in Japan, moderate recovery in the US, and a slowing of contraction in the Eurozone.
Separately, the minister showered praise on public sector banks, saying they had managed to combine social obligations with commercial interests exceptionally well. The banking system was key to the government?s plans to further inclusive growth, he added.
Mukherjee ended his speech by congratulating the winners of the FE Best Banks awards, and urged other banks to compete more aggressively with the winners. That, he said, would only make for a more competitive and better banking system. He also urged banks to use this moment to improve their operational efficiency and emerge even stronger than before the crisis.