On Wednesday, Reserve Bank Governor Shaktikanta Das expressed that the Indian economy has displayed a robust recovery and stands as one of the fastest-growing major economies, even amidst increased uncertainties and significant challenges.
Since the last issue of the FSR in December 2022 both the global and Indian financial systems have experienced distinct developments.
The report states that the global financial system has faced notable challenges starting from March 2023 due to the banking crisis in the United States and Europe.
On the other hand, it stated that the financial industry in India has exhibited stability and resilience, as evidenced by consistent growth in bank lending, minimal non-performing loans, and sufficient capital and liquidity reserves.
The Reserve Bank Governor stressed the indisputable importance of financial stability, urging all participants within the financial system to collaborate diligently in order to safeguard it under any circumstances.
“The Reserve Bank and the other financial regulators remain steadfast in their commitment to safeguard financial stability in the face of potential and emerging challenges,” he said in a foreword to Financial Stability Report (FSR).
The Financial Stability Report (FSR) highlights that the global financial system has faced significant challenges in recent months, primarily stemming from the banking turmoil witnessed in the United States and Europe since early March 2023.
Notably, prominent financial institutions such as Silicon Valley Bank, Signature Bank, and UBS have encountered difficulties, necessitating bailouts and even collapses.
Conversely, the financial sector in India has demonstrated remarkable stability and resilience throughout this period.
It has exhibited consistent growth in bank credit, maintained low levels of non-performing assets, and established substantial capital and liquidity buffers.
This robustness has contributed to a “twin balance sheet advantage” for growth, with both the banking and corporate sectors fortifying their financial positions.
Moreover, the adoption of technology and digitalization has played a pivotal role in facilitating financial intermediation and fostering opportunities for expansion and financial inclusion in India.
This technological advancement has not only bolstered the efficiency of financial services but has also widened the scope for individuals and businesses to access financial resources and participate in economic growth.
He emphasized that in the delicate state of the global environment, policymakers worldwide must prioritize the careful management of policy trade-offs, the preservation of macroeconomic and financial stability, the reinforcement of confidence, and the promotion of sustainable growth.
Reserve Bank Governor Shaktikanta Das Underlined the crucial need for international cooperation among regulators on these matters. However, with regard to India, he stressed that both regulators and regulated entities must remain steadfast in their dedication to maintaining a stable financial system.
He cautioned that vulnerabilities often emerge during favorable periods when risks are commonly ignored. Governor Das also highlighted the importance of global collaboration and regulatory attention in addressing additional challenges like cyber risks and climate change.
Governor Das recognized that the worldwide economy has encountered numerous noteworthy disruptions, such as the Covid-19 pandemic, geopolitical tensions, shifts in monetary policies, and recent banking challenges. The potential for economic fragmentation poses dangers to emerging market and developing economies (EMDEs).
In light of the recent Crisis in the banking sector of advanced economies, Das emphasized the urgent need to reevaluate global standards for regulating the financial industry and foster international collaboration among regulatory bodies.
Within India, it is imperative for both regulators and regulated entities to maintain their dedication to upholding a stable financial system, recognizing that vulnerabilities can emerge even during prosperous periods.
Additionally, Das Pointed out the significance of international cooperation and regulatory focus in tackling other pressing challenges such as cyber risks and climate change.
As part of its G20 presidency, India is actively working to strengthen multilateralism across various domains, as evidenced by its chosen G20 theme: “One Earth, One Family, One Future.”
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