RBI Will Not Hesitate To Take Steps To Maintain Financial Stability: Shaktikanta Das
RBI will not hesitate to take steps to maintain financial stability: Shaktikanta Das
Amidst concerns that a crisis across India’s non-bank lenders is deepening, Reserve Bank of India Governor Shaktikanta Das has reiterated that the central bank stands ready to take any steps needed to ensure financial stability.
“The Reserve Bank will continue to monitor the activity and performance of this (NBFC) sector with a focus on major entities and their inter-linkages with other sectors,” said Das. “The Reserve Bank will not hesitate to take any required steps to maintain financial stability,” he added. Das was speaking at the Lal Bahadur Shastri National Academy of Administration in Mussoorie.
Das’ comments come at a time when fresh concerns have emerged about the health of some large NBFCs and housing finance companies. Over the past two months, Dewan Housing Finance Corporation and Reliance Home Finance Corporation have defaulted on bond repayments, sparking concerns about collateral damage.
The RBI, while stating that it stands ready to act as the lender of last resort, has stopped short of opening a special refinance window for NBFCs. Das reiterated this stance on Monday.
Simultaneously, the regulator has been tightening supervision and regulation for the sector. This, according to Das, is essential to ensure a healthy financial sector.
The Reserve Bank has recently come 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.Shaktikanta Das, Governor, Reserve Bank of India
Looking Beyond RBI’s Inflation Mandate
Commenting on the central bank’s mandate, Das said that “the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth”.
As such, the Reserve Bank’s has been working to ensure price stability, while simultaneously focusing on growth when inflation is under control.
Das, who took over as RBI Governor in December 2018, has presided over three Monetary Policy Committee meetings so far. At each of these meetings, the committee has voted to cut interest rates by a cumulative of 75 basis points. This has led bond market participants and economists to believe that Das is far more pro-growth in his approach to monetary policy than his predecessor Urjit Patel.
Referring to the global debate over the role of central banks in maintaining financial stability, Das said the jury is still out on whether financial stability should be included as an explicit mandate.
Post the global financial crisis, it has been recognised that price stability may not be sufficient for financial stability, said Das.
The fact remains that though the focus of monetary policy is mainly on inflation and growth, the underlying theme has always been financial stability.Shaktikanta Das, Governor, Reserve Bank of India
He added that the jury is still out on whether financial stability should be added as an explicit objective of monetary policy.
Incidentally, the RBI was referred to as a ‘full service central bank’, which looked at financial stability, growth and inflation, while shuffling priorities based on the prevailing economic situation. It was only in 2015 that the RBI took on a ‘flexible inflation-targeting’ mandate, which gave greater primacy to inflation control.