Reserve Bank of India Governor Shaktikanta Das expects a reversal of the current weaknesses in some of the indicators in the economy following the end of political uncertainty associated with the election season and continuation of economic reforms.

“While the global economy is still to recover to the pre-crisis growth path, India has continued to exhibit robust growth, driven by consumption and investment demand in the last three years.

“However, in the more recent period, we have seen a loss of speed in the second half of 2018-19, as some drivers of growth, notably investment and exports, slowed down,” said Das in a lecture delivered at the Lal Bahadur Shastri National Academy of Administration, Mussoorie. On the supply side, activity in agriculture and manufacturing moderated sharply, he added.

To reinvigorate growth by improving investment climate, a healthy financial sector, inter alia, plays an important role, the Governor said, emphasising that in this context, the RBI has accorded high policy attention to reform both banking and non-banking sectors.

Das underscored that the central bank has been taking several steps to strengthen the regulatory and supervisory frameworks to increase the resilience of the banking system.

Guidelines issued

New guidelines have been issued for resolution of stressed assets, which will sustain the improvements in credit culture. In the non-banking sector, the RBI recently came out with draft guidelines for a robust liquidity framework for the NBFCs.

“We are also giving a fresh look at their regulatory and supervisory framework. It is our endeavour to have an optimal level of regulation and supervision so that the NBFC sector is financially resilient and robust.

“The Reserve Bank will continue to monitor the activity and performance of this sector with a focus on major entities and their inter-linkages with other sectors. The Reserve Bank will not hesitate to take any required steps to maintain financial stability,” said Das.

The Governor also pointed out that the RBI is taking a number of steps to improve commercial viability of Urban Co-operative Banks (UCBs). These steps include proposed establishment of an Umbrella Organisation, and a Centralised Fraud Registry for UCBs and governance reforms at the board level.

The central bank is also encouraging voluntary mergers and consolidation in the sector to help reduce operating costs, diversify risks, and economise on capital.

In a flexible inflation-targeting framework, the Governor said a delicate balance needs to be maintained between inflation and growth objectives. The relative emphasis on inflation and growth depends on the prevailing macroeconomic scenario, inflation and growth outlook, and signals emerging from incoming data.

“Post global financial crisis, it has been recognised that price stability may not be sufficient for financial stability, and therefore, financial stability has emerged as another key consideration for monetary policy, though the jury is still out as to whether it should be added as an explicit objective of monetary policy.

“The fact remains that though the focus of monetary policy is mainly on inflation and growth, the underlying theme has always been financial stability,” he elaborated.

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