Indian policy makers must strike an appropriate balance between the need for financial innovation to sustain growth and need for regulation to ensure stability, Chairman of Prime Minister’s Economic Advisory Council Chairman C Rangarajan said at The Sunday Standard’s FINWIZ 2012 Best Bankers’ Awards.
Making a strong pitch for financial innovation, he said, “Financial innovations and regulations must go hand in hand to ensure growth with stability, both the real and financial sectors.”
Addressing the who’s who of Indian banking sector, he emphasized that the financial system must be able to meet the diversified needs of a growing economy and that financial innovation should be encouraged towards this end.
Stressing that there is a need to encourage emergence of a vibrant corporate debt market, he said efficient debt markets will not only help large industries but also small and medium enterprises. “A number of suggestions have been made to create an efficient debt market in the country. Apart from other things, I feel we also need to have institutions which will serve as market makers that will provide the liquidity to markets and make it attractive to investors.”
He also said there is a need to find innovative ways of financing infrastructure. With banks shaving certain limitations in terms of their exposure limits for funding infrastructure projects, he said a vibrant debt market will also help investors need for long-term funding.
Explaining that there is scope for financial innovation in India, Rangarajan said there is need to draw appropriate lessons from the international financial crisis.
“Too little regulation may encourage financial instability but the regulatory perspective on innovation must not become too restrictive,” he said.
Asking banks to refrain from excessive risk taking and leveraging, the former RBI Governor said the regulatory regime needs to be restructured.
Besides Rangarajan, the awards function was also addressed by Commerce and Industry Minister Anand Sharma, SBI Chief Financial Officer Diwakar Gupta, YES Bank Chairman Rana Kapoor, FICCI Secretary General Rajiv Kumar, Competition Commission of India Chairman Ashok Chawla, Punjab National Bank Chairman K R Kamath, Economist Bibek Debroy and Jindal Steel and Power Limited’s Naveen Jindal.