‘Economic revival must continue in full steam’

Our Bureau Mumbai | Updated on March 25, 2021

RBI Governor Shaktikanta Das   -  PTI

Maintaining health of the banking sector a priority: RBI Governor

The revival of economic activity, which has happened, should continue unabated going forward, according to Reserve Bank of India (RBI) Governor Shaktikanta Das. “RBI’s preliminary analysis shows that next year’s GDP growth rate forecast of 10.5 per cent would not require a downward revision,” Das said at the India Economic Conclave.

‘Vaccine insurance’

To a question on whether the “V-shaped” economic recovery could become “U-shaped”, the Governor observed that the central bank has never given its forecast for growth in terms of alphabets. While the renewed surge in Covid-19 cases in many parts of the country is a matter of concern, the Governor said that the country now has some additional insurance – vaccine and Covid-19 protocol – to fight the pandemic impact.

“The rapid progress in the vaccine has upgraded the global outlook, although we are not out of the woods yet as waves of newer variants of the virus bring in fresh concerns,” he said. The present pandemic underlines the imperative of strong capital buffers in the banking system, according to Das. “...Banks would need to shore up their capital position, both to absorb some of the slippages as well as to sustain credit flow, especially when monetary and fiscal measures unwind,” he said.

Banking focus

Going forward, banks need to address the financing needs of new sunrise sectors without undermining the traditional sectors of the economy. Das elaborated that in the Indian context, maintaining the health of the banking sector remains a policy priority.

“.…Banks and NBFCs need to enhance their skillset to identify risks early, measure them, mitigate the risk proactively and build up adequate provisioning buffers to absorb potential losses. They should also augment their internal stress testing framework with severe but plausible stress scenarios,” the Governor said.

Upgradation of IT infrastructure and improving customer services together with cybersecurity measures are other key issues that also need attention, he added.

Newer landscapes

Das envisioned four distinct sets of banking landscapes emerging in the current decade. The first set will be dominated by a few large Indian banks with domestic and international presence.

Second, there will be several mid-sized banks. The third would encompass smaller private sector banks, small finance banks, regional rural banks and co-operative banks.

The fourth would consist of digital players who may act as service providers directly to customers or through banks as their agents or associates.

Digital currency

The Governor said, “We need to be watchful of the risks associated with certain technological innovations. That being said, while we are working on introducing a digital version of the fiat currency, the Reserve Bank is also assessing the financial stability implications of introducing such a Central Bank Digital Currency (CBDC).”

As the underlying technology is still developing, RBI is exploring ways for a clear, safe and legally certain settlement finality, which is most crucial for a secure and efficient payment system. “It also needs to be appreciated that there are not many practical instances of operationalisation of CBDC across the world; this calls for utmost precaution so that we can produce a safe and robust model,” Das said.

Published on March 25, 2021

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