Globals factors pose spillover risks for emerging markets

Domestic macroeconomic conditions remain stable with significant moderation in inflation, though growth momentum has slackened recently.

Published: 30th December 2016 12:29 AM  |   Last Updated: 30th December 2016 07:28 AM   |  A+A-

Urjit Patel | Reuters

RBI governor Urjit Patel | Reuters

By Express News Service

NEW DELHI: Amidst the wreckage of demonetisation, Reserve Bank of India Governor, Urjit Patel stated that global uncertainties exacerbated by hardening of Interest rates in the United States and jump in oil prices will only increase the risk of spillover to the emerging markets.

The RBI Governor also said the global financial crisis led banks to do the stress test and match risk appetites with risk taking capacity and added that last year’s asset quality review and the subsequent corrective actions, which led to a spike in bad assets and shaving profits, are efforts in the same direction.

In his foreword to the half-yearly Financial Stability Report, he stated that the financial system remains stable following the newly implemented policy although banks, especially Public Sector Banks (PSB) had been facing significant levels of changes. However, on the domestic macroeconomic front, condition remain stable with a cool-down in inflation but Patel acknowledged that the growth momentum has “slackened” recently.

While there are various regulatory changes underway globally to strengthen financial stability, Patel pointed out that the global financial crisis has prompted regulators to require banks to undertake stress tests to see if their risk appetite matches their risk taking capacity.

While the domestic banking sector continues to face significant levels of stress partly reflecting legacy issues, on balance, enhanced transparency has helped to reinforce the stability of India’s financial system.

RBI had also stated that the Goods and Service Tax (GST) on indirect taxation, the Bankruptcy Code for resolving asset quality stress and the newly implemented demonetisation policy announced on November 8 can transform the economy of the country, despite some short-term disruptions and “public hardship”.

He cautioned that there was “little room for complacency and it is important to guard against sporadic volatility in financial markets”.

Increasing adoption of digital modes of payments will lead to greater intermediation, efficiency gains, accountability and transparency, he said.

Significantly, against the backdrop, the FSR reviews also outlines that the country is adhering to international standards in banking without “losing sight of domestic compulsions”.


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