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Banks, businesses should assess risk buildup, sharpen governance: Das

Banks, businesses should assess risk buildup, sharpen governance: Das

The Reserve Bank remains agile and vigilant, continuously monitoring the liquidity situation and ready to conduct liquidity operations on either side to ensure that overall liquidity remains adequate to meet the needs of the productive sectors of the economy. India’s banking system is well positioned to support economic growth, with bank credit growing in double digits after a long hiatus, said RBI Governor Shaktikanta Das at the FIBAC 2022 Conference.

INR’s Orderly Movement

On a financial year basis, almost all major currencies – barring a few like the Swiss franc, the Singapore dollar, the Russian rubble and the Indonesian rupiah – have depreciated against the US dollar by more than the Indian rupee. In fact, the INR appreciated against all other major currencies barring of course the US dollar, and a few other currencies. The size of the INR’s appreciation was the highest visà-vis the Japanese yen (12.4%), the Chinese yuan (5.9%), the Pound sterling (4.6%) and the Euro (2.5%).

Fundamental factors that drive the exchange rate have also moved distinctly in favour of India since 2013. In 2013, inflation in advanced economies (AEs) was at 1.4%, as against 10.1% in India. Das said: “The inflation differential of India vis-à-vis AEs is now negative, a rare development with several AEs experiencing double digit inflation. The INR has seen a very orderly movement since the onset of the current geopolitical crisis. I would like to impress upon the banks and businesses to remain focussed on reinforcing their resilience while continuing to grow and meet market demand. They should continuously assess the risk buildup, if any, sharpen governance and strive to maintain healthy levels of capital and other buffers. So far as the RBI is concerned, we remain committed to support and preserve macroeconomic and financial stability.”

Liquidity Strain To Be Transitory

In the month of October, the interaction of global and domestic developments has somewhat tightened the liquidity conditions. Average daily absorption under the liquidity adjustment facility (LAF) amounted to Rs 1.35 trillion during the month, down from the average daily absorption of Rs 2 trillion in September this year. During the month, currency demand was high on account of the festival season. This constitutes a leakage of liquidity from the banking system. The RBI’s forex market operations, along with GST and other tax related outflows, also drained liquidity. Banks partially ameliorated the liquidity stress by drawing down their excess CRR balances and non-SLR investments. Certain banks also took recourse to MSF. Das further explained enlisting the reasons: “This episode of liquidity strain is likely to be transitory on account of several factors. First, the leakage due to currency demand will slow down after the festival season; and as currency returns to the banking system, the system liquidity will improve. Second, government expenditure is likely to pick up after the monsoon season. Third, the pace of forex outflows has moderated, which augurs well for system liquidity, going ahead.”

PR Newswire

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