Reserve Bank of India (RBI) governor Shaktikanta Das on Friday said that the country’s banking system continues to be stable and resilient, and lenders have built sufficient buffers to shield themselves from any unforeseen stress. His comments come amid the recent turmoil in the banking sector globally.
Das also said that the worst of inflation is behind us and that the rupee exhibited the least volatility among its peers.
He stressed that despite the multiple and overlapping shocks to the global economy from the pandemic, Russia-Ukraine war and monetary policy tightening by central banks across the world, the Indian economy remains resilient and is expected to be the fastest-growing major economy in the world.
Commenting on the recent developments in the US banking system, including the failure of three banks, he said that it has brought to the fore the criticality of regulation and supervision in the banking sector.
Speaking at the 17th KP Hormis Commemorative ceremony, Das said the developments highlight importance of banks ensuring prudent asset liability management, robust risk management, and sustainable growth in liabilities and assets. Further, they also put in focus the need for banks to conduct periodic stress tests and build up capital buffers.
“They also bring out that cryptocurrencies, assets or the like, can be a real danger to banks, whether directly or indirectly. The RBI
“We have strengthened our engagement with the senior management and boards of the supervised entities. The focus is now more on identifying the root cause of vulnerabilities, rather than dealing with the symptoms alone. We have also issued revised guidelines on oversight and assurance functions of financial entities,” he added.
Addressing debt distress
The governor said that the aggressive monetary policy tightening by systemic central banks and the consequent appreciation of the dollar have led to several economies with a high share of external debt becoming “highly vulnerable to debt distress”.
Citing an IMF data, the governor said 15% of low-income countries are estimated to be already in debt distress, with an additional 45% at a high risk of debt distress. About 25% of emerging market economies are also at high risk. Further, capital outflows from emerging market and developing economies due to continued tightening of financial conditions have led to reserve losses, sharp currency depreciations and spiraling imported inflation pressures.
“In such a situation, addressing the deteriorating debt situation in low- and middle-income countries, and facilitating coordinated debt treatment by official bilateral and private creditors under a multilateral framework have assumed priority under our G20 presidency,” Das said.
Further, the RBI governor asked stakeholders to take concerted action to tackle climate change. The physical impact of climate change such as the rise in sea level or increased frequency and intensity of extreme weather events can damage infrastructure and property, Das said, adding that this leads to higher costs for both businesses and households.
“All these factors can contribute to higher inflation and lower growth, which can erode the purchasing power of households and businesses. As we all know, such events are becoming more frequent in recent years. Therefore, it is essential that we take concerted climate action to safeguard the future of our planet and its inhabitants,” Das said.