US banking crisis highlights need for regulations, says RBI governor

Kochi: The recent developments in the banking sector in the United States have highlighted the importance of regulations and supervision in the field, Reserve bank of India governor Shaktikanta Das said here on Friday.

The RBI governor exuded confidence that the Indian banking system remains remarkably resilient and stable despite the banking crisis that has been unfolding in the US.

He was delivering the 17th K P Hormis Commemorative Lecture organised by the Federal Bank. It's an annual event organised by the Aluva-headquartered Federal Bank in memory of its founder K P Hormis.

“The recent developments in the banking sector in the US have brought to the fore the criticality of banking sector regulations and supervision. The developments drive home the importance of ensuring prudent asset liability management, robust risk management and sustainable growth in liabilities and assets, undertaking periodic stress tests, and building adequate capital buffers to face any unanticipated stress,” Das said.

Das said the US developments have also brought out that cryptocurrencies/assets or the like, can be a real danger to banks, whether directly or indirectly. He, however, did not go into the details.

“The Reserve Bank has taken necessary steps in all these areas. The regulation and supervision of the financial sector and the regulated entities have been suitably strengthened,” he said.

The RBI governor spoke at length about India’s G-20 presidency. “The ongoing global crisis is both an opportunity and a major test for the G20 which represents 85 per cent of world GDP and 75 per cent of global trade,” he said.

He said sharing India’s experience with G20 nations could open up the scope for collaboration in pursuit of the common goal of a brighter global economy.

“Despite the overwhelming concerns a few months back about an imminent recession, the global economy has in fact exhibited greater resilience, reducing the probability of a hard landing. Nonetheless, there is a trend decline in global growth. There is also considerable uncertainty about structural shifts taking place in the drivers of inflation, ranging from labour market dynamics to concentration of market power and less efficient supply chains.

“In parallel, global food, energy and other commodity prices have softened from respective peaks and the supply chains are normalising, which should help in achieving disinflation. Restoration of a more balanced world economic order is, therefore, at the forefront of the G20 discussions. India has stressed the importance of creating an inclusive agenda to restore stability and confidence in multilateralism while revitalising global growth,” he said.

Das also stressed on the need to address climate change which he said “is no longer a distant threat.”

“Extreme weather events world over, such as floods, droughts, wildfires, cyclones etc, can disrupt production and supply chains and create shortages of essential goods and services at anytime, anywhere. Such events can create a sudden increase in prices leading to inflationary pressures.

“In addition, climate change can also affect the productivity of sectors that are heavily dependent on nature, such as agriculture…. The G20 countries have a major responsibility in providing leadership for global action on climate change and the provision of climate finance, together with the transfer of technology, to take this agenda forward.

“In dealing with weather-related disasters, India has made noteworthy progress in its green transition agenda and capacity creation for efficient disaster management. Sharing our experience with other G-20 countries could open up scope for collaboration, in pursuit of the common goal of a greener global economy,” he said.

Chandrashekhar Balgopal, Chairman, Federal Bank Ltd welcomed the gathering and Shyam Srinivasan, MD & CEO, Federal Bank, delivered the vote of thanks.