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India’s financial sector regulators on Thursday agreed on the need to continue to be in a “state of full preparedness” for managing external vulnerabilities faced by the Indian economy.
High volatilities in the financial markets is one of the most prominent risks confronting emerging market economies, the Finance Minister Arun Jaitley chaired Financial Stability and Development Council (FSDC) concluded at a meeting here on Thursday.
However, the Panel felt that India appeared to be much better placed today on the back of improvement in its macro-economic fundamentals and large forex reserves, which provides cushion against financial market volatility.
There is wide expectation among economy watchers that any US Federal Reserve rate hike in December could exacerbate volatility in financial markets.
At the FSDC meeting, which was attended by Reserve Bank of India Governor Raghuram Rajan and SEBI Chairman U.K. Sinha among other regulators, the Chief Economic Advisor Arvind Subramanian gave an overview of the state of macro-economy highlighting important issues.
The Council deliberated on the issue of rising Non Performing Assets (NPAs) of banks and corporate sector balance sheet stress wherein it noted the measures taken by Government & RBI for handling the stressed assets. It also discussed the impact of Bank NPAs and corporate sector balance sheet stress on Bond market.
A brief report on the activities undertaken by the FSDC Sub-Committee Chaired by Governor, RBI, was placed before the FSDC. The Council also undertook a comprehensive review of the action taken by members on the decisions taken in earlier meetings of the Council.
FSDC was apprised of further action/proposed action on the recommendations of the task forces set up by the Finance Ministry on PDMA (Public Debt Management Agency), FSAT (Financial Sector Appellate Tribunal), FDMC (Financial Data Management Centre) and Resolution Corporation (RC).
On PDMA, the process of inter-ministerial consultations is underway. On FSAT, it is proposed to strengthen the tribunal by providing for more benches.
On FDMC, to begin with, it is proposed to set-up a body which would assist FSDC in decision making. As for Resolution Corporation, it is proposed to set-up the body in consultation with all stakeholders.
The Government had constituted in December 2014 an Inter-ministerial Group (IMG) under Additional Secretary (Investment), DEA, for identifying gaps in the existing regulatory framework for deposit taking activities and to suggest, measures to address issues relating to deposit taking.
The IMG has recently submitted its report to the Government. FSDC was apprised of the salient features of the report. Department of Financial Services is considering the recommendations of the Committee, an official release said.
FSDC was updated about the merger of FMC with SEBI and the current status of harmonization and convergence of regulations relating to securities market and commodity derivatives market.
Rajan meets FM
Earlier in the day, RBI Governor Rajan said that Monetary Policy Committee (MPC) agreement has been largely done and that only fine tuning is left. “The Government and RBI are broadly in same page on the composition of MPC”, Rajan told reporters at North Block after a meeting with Finance Minister Jaitley.
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