RBI says it has big concerns on cryptocurrencies

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November 17, 2021 5:30 AM

“When the central bank says that we have serious concerns from the point of view of macroeconomic and financial stability, there are far deeper issues involved,” Das observed at the State Bank of India’s Economics Conclave.

Das said the RBI is taking a closer look at the strategies of banks. The regulator will not interfere in the commercial decisions of banks, but at the same time, it will closely monitor their business models.Das said the RBI is taking a closer look at the strategies of banks. The regulator will not interfere in the commercial decisions of banks, but at the same time, it will closely monitor their business models.

Reserve Bank of India (RBI) governor Shaktikanta Das on Tuesday called for a deeper discussion on the issue of cryptocurrencies, given the central bank’s reservations on the subject. “When the central bank says that we have serious concerns from the point of view of macroeconomic and financial stability, there are far deeper issues involved,” Das observed at the State Bank of India’s Economics Conclave.

The governor regretted there was no “serious, well-informed discussions” in the public space on these issues. The central government is in the process of drafting a Bill on cryptocurrencies though it is not clear what shape that will take.

Das had said last week the number of crypto accounts in India was exaggerated, with 70-80% of the accounts being of small denominations of Rs 1,000, Rs 2,000 and even Rs 500. The RBI has also received feedback that credit and other incentives are being provided to open accounts.

Das said the RBI is taking a closer look at the strategies of banks. The regulator will not interfere in the commercial decisions of banks, but at the same time, it will closely monitor their business models.

Banks should ensure that their business models and business strategies are conscious choices, following a robust strategic discussion in their boards, instead of being driven by a mechanical ‘follow the market’ approach, Das said. “Certain banks had followed the high risk and high return business strategy, with a skewed priority for serving only the interest of their investors,” he said, arguing for a more active role of the boards, especially in challenging the proposals of the management.

The RBI is gradually rebalancing liquidity to move to a situation where banks have adequate liquidity, rather than an excess of it, the governor said. The central bank is also closely watching the business models of banks in order to stay abreast of risks and vulnerabilities building up therein, Das said. The governor said that irrespective of the fact that liquidity is in surplus, the risk pricing of loans has to be done diligently by banks themselves.

“The mere fact that there is excessively excess liquidity should not lead to any mispricing of loans because this excessive liquidity is not going to be a permanent feature,” Das said. The RBI’s supervision now happens on an almost real-time basis and is not an annual exercise anymore, Das said. “While banks take their commercial decisions, they should also factor in how much liquidity is available and what kind of interest rate structures they are providing,” he added.

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