The Reserve Bank of India does not take a view on asset prices, whether they are in real estate or capital markets, said governor, YV Reddy, during his speech on Sunday at Basel in Switzerland.
“Though we do not take a view, we wanted to protect the banking system from possible risks,” he said.
Reddy also pointed out that the RBI has focussed on liquidity mechanisms and systems in the banking space. “Asset liability management is left to the banks, but regulatory limits on short term buckets have been prescribed.
Further, in order to reduce the extent of concentration of the bank’s liabilities, we had issued guidelines to banks in March 2007, placing prudential limits on the extent of their Inter-Bank Liability (IBL) as a proportion of their net worth (200%),” he noted.
Speaking of ‘out-of-the-ordinary’ situations which arise, Reddy said that exceptional or flexible arrangements are needed. “This helps in avoiding more serious problems relating to the balance over the medium-to-longer term,” he said.
Quoting an example, Reddy pointed out that the recent oil imports had to be financed through off-market processes. “Delayed adjustments to such sudden and unexpected cross-border exogenous developments at such times may impose a stress on liquidity. Hence, addressing frictional issues of liquidity as distinct from underlying issues of levels of liquidity is required to look at the balance dynamics,” he said.
The RBI is in regular touch with the Indian Bankers’ Association, the Foreign Exchange Dealers Association of India, the Primary Dealers Association of India, and the Fixed Income and Money Market Dealers Association of India.
“We have a three-stage participation in the process issue of important regulations, which normally involves preliminary discussions with the representative bodies and select market participants, preparation of a technical report by working groups that often includes the regulators and the market participants and academia, and placing the report in the public domain for feedback,” he said.
On the basis of the report and the initial feedback, draft guidelines are usually formulated and again placed in public domain for a feedback. These guidelines are finalised on the basis of further feedback, Reddy noted.