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The restrictions imposed on the futures market will be rolled back only after the foreign exchange market stabilises, said RBI Governor D. Subbarao.
He was giving the keynote address at a banking technology awards presentation ceremony organised by the Institute for Development Research in Banking Technology (IDRBT) here on Friday.
The RBI and SEBI recently imposed some restrictions on the futures market, such as raising the margins and limiting the positions that market participants can take. Proprietary trading by banks was also prohibited.
These measures were put in place to curb speculation that was resulting in volatility in exchange rates.
“In Reserve Bank’s view, undue volatility of the exchange rate is harmful for growth and stability, and such volatility should be curbed,” Subbarao said.
On innovation and regulation, he said financial markets were different compared to other markets and, hence, required a different approach.
“Financial markets are reflexive, in the sense that our beliefs about what may happen often influence what does happen. Common sense does not hold. The more financial insurance is written, the more likely that the insured event will occur because people who benefit from the contingency can make it happen,” Subbarao said.
Referring to some recent criticism of RBI’s policy of allowing companies to apply for bank licences, the RBI chief said it was an example of a responsible regulation “which is not dogmatic, but pragmatic”.
Along with many other factors that influenced this decision, the experience of corporates operating in regulated sectors such a telecom, airports, power, mutual funds, asset management and insurance was also a positive factor. Lauding efforts of IDRBT in promoting innovation, he said regulation and innovation must go hand-in-hand.
Anand Sinha, Deputy Governor of RBI and IDRBT chairman, said synergies between the RBI and the Institute were growing.
B. Sambamurthy, Director, IDRBT, said the technology landscape was changing with mobile banking, analytics, social media and cloud computing.
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