At a conference on global banking organised jointly by Ficci and IBA, Reddy said, There is a continued growth in credit which certainly demands monitoring. This is on account of the monetary policy having a lag effect on credit growth.
The growth in credit was 35% before RBI announced the credit policy. It is currently ruling at about 25-30%, and the central bank is keen to bring it down to 20 %.
Reddy pointed out the need to look into the composition of credit and the imbalance between credit and deposit. Reddy stated that if the imbalance between credit and deposit is corrected, then one of the areas of concern would be reduced.
His reminder to monitor credit growth comes in the wake of the fact that credit growth both in corporate and retail has remained high in the recent months despite measures by the RBI to slow it down.
Talking about capital flows into the country, the RBI governor said capital flows would be sufficient to cover the current account deficit levels. As per our assessment, the capital flows in the country should be comfortable enough to take care of the current account deficit level, which continues to be broadly optimistic, he said Reddy opined the current level of oil prices was at fairly elevated levels and there was no dramatic shift. However, comfort remains that oil prices now are moving downwards rather than moving upwards, he said.
Against the backdrop of a possibility of a global slowdown, Reddy said India would be less affected by the global slowdown on account of the countrys inherent strengths of healthy domestic demand, diversified external trade and limited exposure of individuals, companies and financial intermediaries to foreign currency risk. Over the medium term, we can confidently aim at remain at the current broad range of GDP growth and inflation, without sacrificing on stability, he added.
He said that globally hedge funds transactions had seen a significant increase. There is uncertainty in trading settlements in the OTC derivatives, especially in the credit derivative segment.