Mumbai:

RBI Governor Shaktikanta Das on Thursday said that the Indian financial system is in a “much stronger position,” characterised by robust capital adequacy, low levels of non-performing assets, and healthy profitability of banks and non-banking lenders.

Underscoring the imperative of fostering a future-ready ethos within the financial sector, Das also stressed the critical role of timely supervisory intervention in mitigating systemic risks.

The RBI Governor said this while delivering an address at the inaugural Global Conference on Financial Resilience organised by the College of Supervisors at the IGIDR Campus in Mumbai.

“India’s domestic financial system is now in a much stronger position than it was before we entered the period of the COVID crisis. Indian financial system is now in a much stronger position, characterised by robust capital adequacy, low levels of non-performing assets, and healthy profitability of banks and non-banking lenders, that is NBFCs,” he said.

He added, “I would like to compliment the banks and other financial sector entities for such a stellar performance in the year which has just ended on March 31. There is absolutely no room for complacency because the world is changing, challenges are coming, complexities are growing, and problems can originate from any corner of the financial system within the country, or the world because of something which may be completely unrelated to you and me…”

Governor Shaktikanta Das began by referencing to global banking failures, including those in the United States, and the challenges faced by institutions like Credit Suisse, emphasizing the lessons learned from such incidents.

He acknowledged the detailed analysis conducted by the US Federal Reserve on bank failures and stressed the importance of proactive regulatory measures to prevent crises.

Highlighting RBI’s proactive approach, Governor Shaktikanta Das cited the intervention in the Yes Bank crisis as a testament to the central bank’s ability to preemptively address financial instability.

He noted the advantages of RBI’s integrated approach in leveraging various facets of banking operations to manage crises effectively.

Addressing the diverse origins of financial crises, Governor Shaktikanta Das identified internal deficiencies within organizations, external factors like climate change, technological disruptions, and undetected fraud as potential catalysts.

He emphasized the need for supervisors to enhance their methods and align them with evolving stress scenarios over time.

Governor Shaktikanta Das outlined RBI’s recent supervisory initiatives, including the moderation of unsecured lending and reduction in bank exposure to Non-Banking Financial Companies (NBFCs), aimed at preempting future risks.

Das said, “Fortunately, all stakeholders in India, namely, the Reserve Bank, the Banks and Non-banking financial companies (NBFCs), and the government have made tangible efforts in this direction. India’s domestic financial system is now in a much stronger position, characterised by robust capital adequacy, low levels of nonperforming assets, and healthy profitability of banks and NBFCs.”

He stressed the importance of continuous vigilance despite current sectoral stability, urging financial institutions to embrace technological advancements while maintaining robust governance and ethical standards.

He highlighted the pivotal role of AI and machine learning in fraud prevention and operational efficiencies, underscoring the need for secure technological integrations aligned with business goals.

Das stated, “AI and ML can enhance predictive analytics and enable banks and NBFCs to identify potential risks and trends more accurately. These technologies can improve fraud detection by recognising unusual patterns and transactions in realtime. Thus, they can protect the institutions and their customers from financial crimes and frauds.”

He further added, “Operational efficiency can be improved through automation of routine tasks, which reduces human error and frees up resources for more strategic activities. Robotic process automation (RPA) can handle high-volume and repetitive tasks, such as data entry and transaction processing, more quickly and accurately than humans.”

Looking ahead, Governor Shaktikanta Das outlined RBI’s commitment to regulatory stability, emphasizing a thematic and activity-based supervisory approach.

He highlighted RBI’s efforts to establish a unified supervision department and engage senior officers to foster closer collaboration with bank boards.

Governor Shaktikanta Das expressed RBI’s ambition to position itself as a model for emerging economies, advocating for a holistic, customer-centric regulatory framework as RBI approaches its centenary.

Governor Shaktikanta Das emphasized RBI’s ongoing initiatives, including the creation of a unified supervision department and the adoption of unconventional methods to enhance regulatory effectiveness.

He highlighted the proactive engagement of senior officers at Executive Director levels with bank boards to reinforce RBI’s oversight priorities.

Governor Shaktikanta Das reiterated RBI’s vision for its centenary, aiming to position the institution as a benchmark for the Global South through a holistic, customer-centric regulatory framework.

These initiatives underscore RBI’s commitment to fostering financial resilience and maintaining high standards of governance in the dynamic global financial landscape.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

RBI Governor Shaktikanta Das.
| Photo Credit: ANI

Reserve Bank Governor Shaktikanta Das on April 8 stressed the need for greater participation of Indian banks in rupee derivatives market, both domestically and offshore, while being prudent.

The Governor noted that participation of domestic banks in derivative markets remains limited with only a small set of active market-makers. Also, participation of Indian banks in global markets is growing but it is quite small.

“Domestic banks are dealing with market-makers in global markets rather than with end clients and are yet to emerge as market-makers of note globally,” Das said in his keynote address at the FIMMDA-PDAI Annual Conference in Barcelona.

Of course, he added banks need to do their own due diligence, assess their risk appetite, and then move forward carefully in this direction.

Also Read | RBI holds firm on rupee derivatives stance, defers norm implementation to May 3

“Going forward, our focus should be on enhancing and widening the participation of Indian players in markets for INRderivatives, both domestically and offshore, while being prudent,” the Governor said.

He noted that the recent financial market reforms undertaken by the Reserve Bank are aimed at providing a strong bedrock for markets to move to the next trajectory for meeting the growing funding requirements in the economy, providing cost-effective hedging options and competing effectively in global markets.

There are, however, some areas which call for attention, he said, while highlighting specific areas where more can be done.

Das said transparency in pricing remains work in progress and more can be done.

“The retail customer is yet to get a deal at par with large customers. There is a need for effective market-making and finer pricing for smaller deals on NDS-OM,” he said.

Divergence in pricing in FX markets for small and large customers is wider than what can be justified by operational considerations, Mr. Das said, and added that banks may need to do more to facilitate the use of the FX Retail platform..

“We continue to see banking channels being used by certain persons or entities to fund activities on unauthorised FX trading platforms. This warrants enhanced vigilance by the banks,” the Governor said.

He further said efforts are being made to leverage technology for achieving greater efficiency while also meeting the objectives of market reforms.

Also Read | RBI’s stance on underlying exposure for FX derivatives said to be unchanged

The Reserve Bank, he added remains engaged with stakeholders to assess the need for the introduction of new products and infrastructure based on evolving market developments.

“Innovation has been sought to be promoted through a move towards principle-based regulation, widening of the participant base, introduction of new products and platforms as well as enabling access to offshore markets,” Mr. Das said.

In his address, the governor also dwelt upon the journey of the Reserve Bank, especially in the context of its role in developing the financial markets in India in the recent period.

The RBI has entered its 90th year of its formation on April 1, 2024.

The retail inflation in February was 5.1%, while inflation in the food basket was at 8.66%.

The Reserve Bank of India (RBI) on April 5 said food price uncertainties continue to weigh on the inflation trajectory going forward, even as it retained 4.5% retail inflation projection for the current fiscal.

In its first bi-monthly monetary policy for current fiscal, the RBI said notwithstanding the cut in petrol and diesel prices in mid-March 2024, the recent uptick in crude oil prices needs to be closely monitored.

“Continuing geopolitical tensions also pose upside risk to commodity prices and supply chains,” RBI said. “Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5%,” RBI governor Shaktikanta Das said.

RBI Monetary Policy updates | Policy repo rate unchanged at 6.5%; real GDP growth for FY25 projected at 7%

Although RBI retained the full year inflation projection, it tweaked the forecasts for the quarter. RBI forecast April-June quarter inflation at 4.9% and in September quarter at 3.8%.

For December and March quarters, inflation is projected at 4.6% and 4.7%, respectively. The RBI said that deflation in fuel is likely to deepen in the near term, following the cut in LPG prices in March.

The government last month announced a steep cut of ₹100 in cooking gas LPG prices to ease the financial burden on households. Also, public sector oil retailers cut petrol and diesel prices by ₹2/litre, ending a nearly two-year-long hiatus in rate revision.

“Food price uncertainties continue to weigh on the inflation trajectory going forward. A record rabi wheat production would help temper price pressure and replenish the buffer stocks. Moreover, early indication of a normal monsoon augurs well for the kharif season,” RBI said.

RBI said inflation has come down significantly but remains above the 4% target. Food inflation continues to exhibit considerable volatility impeding the ongoing disinflation process.

“Our ongoing effort is to ensure fuller transmission of policy actions and anchoring of household inflation expectations. The strong growth momentum, together with our GDP projections for 2024-25, give us the policy space to unwaveringly focus on price stability,” RBI said.

The RBI has the mandate to contain retail or consumer price index (CPI) inflation at 4%, within a band of +/-2%. Mr. Das said two years ago, around this time, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation.

“The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis.”

“In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished,” Mr. Das said.

The retail inflation in February was 5.1%, while inflation in the food basket was at 8.66%. For the 2023-24 fiscal, RBI has projected average retail inflation at 5.4%.

The spike in food prices has kept the Reserve Bank of India (RBI) worried even though overall inflation has moderated to a certain extent.

On April 5, the Central bank’s Monetary Policy Committee decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. This is the seventh time that the rates have been kept on hold.

“The Monetary Policy Committee (MPC) remains focused on aligning inflation to the target on a durable basis. We derive satisfaction from the progress made under disinflation. But the task is not yet finished,” RBI Governor Shaktikanta Das said at a press conference after the MPC meeting.

RBI Monetary Policy updates | Policy repo rate unchanged at 6.5%; real GDP growth for FY25 projected at 7%

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

Food price uncertainties

In his monetary policy statement, Mr. Das said, “Food price uncertainties continue to weigh on the inflation trajectory going forward. A record rabi wheat production would help temper price pressure and replenish the buffer stocks. Moreover, early indication of a normal monsoon augurs well for the kharif season.”

“International food prices also remain benign. The tight demand supply situation in certain categories of pulses and the production outcomes of key vegetables warrant close monitoring, given the forecast of above normal temperatures in the coming months,” he said.

“Frequent and overlapping adverse climate shocks pose key upside risks to the outlook on international and domestic food prices,” he said, adding that as per the Indian Mereological Department’s forecast, the months of April, May, and June will witness above normal maximum temperatures in most parts of the country. 

Volatile food inflation

Answering a question on what is fuelling food inflation, RBI Deputy Governor Michael D. Patra told The Hindu, “Food inflation has been highly volatile. In February 2024 it was 7.8% and the indications are that in view of adverse climate events recurring, it will remain high.”

“The actors keep shifting. Sometime it is cereals, then vegetables and currently it is protein which is eggs, meat and fish. There is some firmness in rice prices,” he said. “These are short duration spikes but since they occur on multiple occasions, they give a persistent character. So what we are worried about is that there should not be any spillover to the rest of the CPI. So we remain watchful, very closely.” Mr. Patra added.

Growth-inflation dynamics

Overall inflation has been controlled to a certain extent; since the last policy, the growth-inflation dynamics have played out favourably.

While growth has continued to sustain its momentum, surpassing all projections. headline inflation has eased to 5.1% during January and February 2024 from 5.7% in December 2023, with core inflation declining steadily over the past nine months to its lowest level in the series, Mr. Das said in his monetary policy statement.

He added that the fuel component of the CPI remained in deflation for six consecutive months; food inflation pressures, however, accentuated in February.

“Looking ahead, robust growth prospects provide the policy space to remain focused on inflation and ensure its descent to the target of 4%. As the uncertainties in food prices continue to pose challenges, the MPC remains vigilant to the upside risks to inflation that might derail the path of disinflation,” he said.

“Under these circumstances, monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission of the past actions. The MPC, therefore, decided to keep the policy rate unchanged at 6.50% in this meeting and remain focused on withdrawal of accommodation. The MPC will remain resolute in its commitment to aligning inflation to the target,” he added.

Fuel price deflation

Mr. Das said that cost push pressures faced by firms were seeing an upward bias after a period of sustained moderation.

“Deflation in fuel is likely to deepen in the near term, following the cut in LPG prices in March. Notwithstanding the cut in petrol and diesel prices in mid-March, the recent uptick in crude oil prices needs to be closely monitored. Continuing geo-political tensions also pose upside risk to commodity prices and supply chains,” he said.

Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5% with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5% . The risks are evenly balanced.

Growth prospects

Around this time two years ago, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation, Mr. Das said. “The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished,” he said.

On growth prospects, the Governor said that headwinds from geopolitical tensions, volatility in international financial markets, geoeconomic fragmentation, rising Red Sea disruptions, and extreme weather events pose risks to the outlook.

Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7%, with Q1 at 7.1%; Q2 at 6.9%; Q3 at 7%; and Q4 at 7%. The risks are evenly balanced.

The RBI and Bank Indonesia MoU covers all current account transactions, permissible capital account transactions and any other economic and financial transactions as agreed upon by both countries. 
| Photo Credit: Reuters

The Reserve Bank of India (RBI) and the Bank Indonesia (BI) signed a Memorandum of Understanding (MoU) on March 7 in Mumbai for establishing a framework to promote the use of local currencies viz., the Indian Rupee (INR) and the Indonesian Rupiah (IDR) for cross-border transactions. The MoU was signed by the Reserve Bank of India governor Shaktikanta Das and the Bank Indonesia governor Perry Warjiyo.

The MoU on establishing a framework for cooperation in the area of cross-border transactions in local currencies between India and Indonesia, aims to promote the use of INR and IDR bilaterally.

The MoU covers all current account transactions, permissible capital account transactions and any other economic and financial transactions as agreed upon by both countries.

This framework would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-IDR foreign exchange market.

“Use of local currencies would optimise costs and settlement time for transactions,” the RBI said in a statement.

“Use of local currencies in bilateral transactions will eventually contribute to promoting trade between India and Indonesia as well as deepen financial integration and strengthen the long historical, cultural and economic relations between India and Indonesia,” the statement added.

A QR code for the Paytm digital payment system at a road side stall in Mumbai.
| Photo Credit: EMMANUAL YOGINI

Reserve Bank Governor Shaktikanta Das on Thursday said there are no systemic worries and the action on Paytm was driven by a “lack of compliance” at Paytm.

Deputy Governor Swaminathan J. said the actions against the fintech have been taken due to “persisted non-compliance”.

The Governor declined to specify the specific shortcomings resulting in the RBI action, but made it clear that it is driven by a “lack of compliance” at Paytm.

Stressing that the Reserve Bank of India (RBI) is a responsible regulator, Das asked why should the central bank act against a regulated entity if it has complied with all the requirements.

The RBI works with entities on a bilateral basis, nudges them to comply by giving sufficient time, and imposes business restrictions or supervisory actions only when the entity does not take necessary actions, Das said.

“When constructive engagement doesn’t work or when the regulated entity does not take effective action, we go for imposing business restrictions,” Das said, adding that the actions are “proportionate” to the gravity of the situation.

The actions are driven by systemic stability or protection of depositor or customers’ interests, he added.

The Governor also affirmed the Reserve Bank’s commitment to support innovation in the financial sector, saying there should not be “any doubt” around it.

Acknowledging that the RBI has received feedback from the wider public, Das said the RBI will be coming out with a set of FAQ (frequently asked questions) to assuage the concerns.

Reserve Bank of India Governor Shaktikanta Das. File
| Photo Credit: EMMANUAL YOGINI

“With India’s current account deficit (CAD) declining sharply to 1% of GDP in Q2:2023-24 from 3.8% in Q2:2022-23,” RBI Governor Shaktikanta Das on February 8 said going ahead, the net balance under services and remittances would remain in large surplus, partly offsetting the trade deficit. 

“India’s services exports remained resilient in October-December 2023, driven by software, business and travel services. Moreover, with around 10.2% share in world telecommunications, computer and information services exports, India is a significant player in the world software business,” Mr. Das said in his statement. 

He said according to the World Bank, with an estimated $135 billion in inward remittances in 2024, India would remain the largest recipient of remittances globally.

On the financing side, Mr. Das said the net foreign direct investment (FDI) stood at $13.5 billion in April-November 2023 as compared with $19.8 billion a year ago.

“Foreign portfolio investment (FPI) witnessed a sharp turnaround during 2023-24 (up to February 6) with net FPI inflows of $32.4 billion as against net outflows of $6.7 billion a year ago,” he said. 

“Net accretions to non-resident deposits and net inflows under external commercial borrowings were also higher during the year,” he added. 

“As on February 2, 2024, India’s foreign exchange reserves stood at $622.5 billion .46 Vulnerability indicators suggest greater resilience of India’s external sector. We are confident of comfortably meeting all our external financing requirements,” he further said. 

Reserve Bank of India Governor Shaktikanta Das.
| Photo Credit: PTI

The Reserve Bank of India (RBI) on February 8 projected GDP growth for the next financial year at 7% on the back of improved household consumption and upturn in private capex cycle.

The real GDP growth is, however, lower than 7.3% estimated by the National Statistical Office (NSO) for the current 2023-24 fiscal aided by strong domestic economic activity and investments. The Indian economy grew 7.2% in 2022-23 fiscal.

In its Monetary Policy Statement, 2023-24, RBI Governor Shaktikanta Das said the recovery in rabi sowing, sustained profitability in manufacturing and underlying resilience of services should support economic activity in 2024-25.

“Among the key drivers on the demand side, household consumption is expected to improve, while prospects of fixed investment remain bright owing to upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates; and government’s continued thrust on capital expenditure,” Mr. Das said.

The improving outlook for global trade and rising integration in the global supply chain will support net external demand. The RBI flagged headwinds from geopolitical tensions, volatility in international financial markets and geo-economic fragmentation as risks to growth outlook.

“Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7% with Q1 (April-June) at 7.2%; Q2 at 6.8%; Q3 at 7% and Q4 at 6.9%. The risks are evenly balanced,” Mr. Das said.

To keep inflation within the targeted 4% (+/-2%) band, the RBI on February 8 retained benchmark interest rate or repo at 6.5%.

The interest rate setting monetary policy committee (MPC) also decided to remain focussed on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

“Global growth is likely to remain steady in 2024 after a surprisingly resilient performance in a turbulent year gone by. Inflation is edging down from multi-decade highs, with intermittent upticks,” Mr. Das said.

Mr. Das said rural demand in India continues to gather pace, urban consumption remains strong and investment cycle is gaining steam on the back of increased capex. Also, there are signs of revival in private investments.

Reserve Bank of India Governor Shaktikanta Das. File
| Photo Credit: PTI

Digital Rupee users will soon be able to execute transactions in areas with limited internet connectivity as the Reserve Bank of India (RBI) on February 8 announced that offline capability will be introduced on the Central bank digital currency (CBDC) pilot project.

RBI Governor Shaktikanta Das said that programmability-based additional use cases will be introduced as part of the pilot project. RBI launched a pilot of the retail CBDC in December 2022 and achieved the target of having 10 lakh transactions a day in December 2023.

It can be noted that other payment platforms, especially the very popular Unified Payments Interface (UPI), already offer offline possibilities.

“It is proposed to introduce an offline functionality in CBDC-R (Retail) for enabling transactions in areas with poor or limited internet connectivity,” Mr. Das said while announcing the bimonthly monetary policy review.

He said multiple offline solutions, which include both proximity and non-proximity based ones, will be tested across hilly areas, rural and urban locations for the purpose.

On the programmability front, he said that currently, the system enables Person to Person (P2P) and Person to Merchant (P2M) transactions using digital rupee wallets provided by pilot banks.

“It is now proposed to enable additional use cases using programmability and offline functionality,” he said.

“The programmability feature will permit users such as government agencies to ensure that payments are made for defined benefits,” he said, adding that corporates will also be able to programme specified expenditures like business travel for their employees.

“Additional features such as validity period or geographical areas within which CDBC may be used can also be programmed,” he said.

Meanwhile, Mr. Das also announced RBI’s intent to enhance the security features of Aadhaar enabled Payment Systems (AePS), which was used by 37 crore people in 2023.

“To enhance the security of AePS transactions, it is proposed to streamline the onboarding process, including mandatory due diligence, for AePS touch point operators, to be followed by banks,” Mr. Das said, adding that instructions on the same will be issued shortly.

At present, Mr. Das said lenders are using the SMS method for complying with the additional factor authentication requirements but advancements in technology have opened up newer means.

“To facilitate the use of such mechanisms for digital security, it is proposed to adopt a principle-based “Framework for authentication of digital payment transactions”,” he said.

RBI governor Shaktikanta Das delivers the plenary address at the ‘Kautilya Economic Conclave’, in New Delhi, on October 20, 2023.
| Photo Credit: PTI

Reserve Bank of India (RBI) governor Shaktikanta Das on October 20 stressed that the monetary policy must remain actively disinflationary to ensure that the decline in inflation from its peak of 7.44% in July continues smoothly.

Addressing the Kautilya Economic Conclave 2023, he also said price stability and financial stability complement each other and it has been an endeavour at RBI to manage both efficiently.

Retail inflation declined to a three-month low of 5.02% annually in September on account of moderation in vegetables and fuel prices, and was back within the Reserve Bank’s comfort level.

The inflation based on Consumer Price Index (CPI) was 6.83% in August and 7.41% in September 2022. In July, inflation touched a peak of 7.44%.

The Reserve Bank has raised the key policy rate (repo) by 250 basis points since May 2022 to tame inflation. However, it pressed the pause button on rate hike in February this year.

“We have maintained a pause on policy rate. So far 250 basis points rate hike is still working through the financial system. We have also appropriately fine-tuned our communication to ensure a successful transmission of the interest rate hikes,” the governor said.

He also said expansion of digital payments have made monetary policy transmission more quick and effective.

Mr. Das also stressed that the monetary policy is always challenging and there is no room for complacency. In his speech, the governor also said the global economy is now facing a triad of challenges — inflation, slowing growth and risks to financial stability.

“First, no moderation in inflation which is getting interrupted by recurring and overlapping shocks. Second, slowing growth and that too with fresh and enhanced obstacles. And third, lurking risks of financial stability,” he said.

With regard to the domestic financial sector, he said Indian banks would be able to maintain minimum capital requirements even during stress situation.

India is poised to become the new engine of global growth, Mr. Das said, and added the country is expected to clock 6.5% GDP growth rate in the current fiscal ending March 2024.