Pandemic more challenging than 2008 global financial crisis: RBI governor

Chennai

Economic recovery is visible, says RBI governor Shaktikanta Das, as he stresses on the importance of managing the tightrope walk through timely capitalisation of banks.

The need to have stable and robust balance sheets is imperative, said Das at the 39th Palkhivala Memorial Lecture organised virtually by the Palkhivala Foundation on Saturday.

Speaking on ‘Towards a Stable Financial System,’ he said lessons were learnt from the global financial crisis. But the pandemic was unique and much more challenging than the 2008 financial crisis, he sought to point out, which led the RBI to embark on a series of measures including those that would address stress encountered by market entities.

The liquidity measures taken included Rs 12.81 lakh cr that translated to 6.3% of the GDP besides various countercyclical measures to ensure that the flow of credit was uninterrupted.

Three key areas that the RBI governor spoke about were stability of banking and non-banking financial companies, stability of service sectors and ensuring fiscal stability.

Internal audit, Das said, will get more focus, as the supervisory framework is getting more tightened. Instead of silo audits of different banks like non cooperative banks, scheduled or non scheduled banks, the RBI is integrating all functions by enabling various tools of supervision to be accessible. A thematic study of this kind also helped in macro understanding with early identification of vulnerabilities.

The RBI chief also said data analytics at the offsite would help in better supervision of on-site supervisors. This technology intervention would help in being well prepared in the audit of supervised entities.

When it comes to Know Your Customer and anti-money laundering, the RBI is following global best practices.

To a question on Bad banks, Das said the RBI is open to examining them with appropriate regulatory guidelines

On the bond market, he said several measures have been taken and dialogue is on with stakeholders. India, he sought to emphasise that it has one of the most liquid markets, where the government bonds came with the best entry norms and also facilitated ease of exits.

Das also said the financial sector has become more complex and the interconnectedness came into play.

On capital expenditure, he said its multiplier effect has to be understood and likewise some of the revenue expenditure also. “Every rupee that the government spends (Centre or the states) – what is the outcome, what percentage of it goes for one-time benefit/measures?,” the RBI governor said, adding that areas which have seen the multiplier effect need to be identified so that the metrics to measure the quality of expenditure is possible. While the RBI is brainstorming in this regard, he was in favour of throwing this open to the public so that it can generate discussion that will help in a more effective analysis.