Indian economy made solid recovery despite global headwinds: RBI governor

The Indian economy has made a solid recovery despite formidable global headwinds and heightened uncertainties, said the Reserve Bank of India (RBI) governor Shaktikanta Das on Wednesday (June 28). And added that India is among the fastest-growing large economies in a fragile global milieu.

Financial stability is non-negotiable and all stakeholders in the financial system must work to preserve this at all times, he stressed. “The Reserve Bank and the other financial regulators remain steadfast in their commitment to safeguard financial stability in the face of potential and emerging challenges,” he said in a foreword to Financial Stability Report (FSR).

In this fragile milieu worlwide, the RBI governor said, balancing the policy trade-offs, preserving macroeconomic and financial stability, shoring up confidence and supporting sustainable growth are top priorities for policymakers the world over.

Over the last three years, the global economy has been navigating successive high-amplitude shocks: the COVID-19 pandemic waves; protracted geopolitical hostilities; rapid monetary policy tightening; and the recent banking turmoil.

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Economic fragmentation is threatening macroeconomic prospects, especially among emerging market and developing economies (EMDEs), the RBI governor said. Since the last issue of the FSR in December 2022, the global and Indian financial systems have charted somewhat different trajectories.

Banking turmoil in US and Europe

The global financial system has been impacted by significant strains since early March 2023 from the banking turmoil in the US and Europe.

Earlier this year, US-based Silicon Valley Bank and Signature Bank collapsed. It was followed by the bailout of UBS, the Switzerland’s largest bank, by Credit Suisse in March.
In contrast, it said, the financial sector in India has been stable and resilient, as reflected in sustained growth in bank credit, low levels of non-performing assets and adequate capital and liquidity buffers.

Both banking and corporate sector balance sheets have been strengthened, engendering a twin balance sheet advantage for growth, he said, adding, the reach and depth of financial intermediation are being aided by technology and growing digitalisation, which provide new opportunities for growth and financial inclusion.

As the recent banking turmoil in certain advanced economies (AEs) suggests, new risks have necessitated reassessment of global standards on financial sector regulations, he said.

While international cooperation among regulators on these issues is of paramount importance, he said, so far as India is concerned, both regulators and regulated entities need to stay the course with an unwavering commitment to ensuring a stable financial system.

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Ensuring a stable financial system

It has to be remembered that seeds of vulnerability often get sown during good times when risks tend to get overlooked, he said. International cooperation and regulatory focus are also needed to tackle other challenges such as cyber risks and climate change, added the RBI governor.

Through its G20 presidency, India is striving to improve the efficacy of multilateralism in several such areas. These efforts are fittingly captured in India’s theme for G20: One Earth, One Family, One Future.