Maintaining financial stability remains one of the uppermost objectives of the Reserve Bank of India (RBI), drawing from its wide mandate as the regulator of the banks, NBFCs and payment systems; regulator of the money, forex, government securities and credit markets; and also as the lender-of-the-last resort, according to Shaktikanta Das, RBI Governor. He noted in a latest speech that since the global financial crisis (GFC) of 2008, financial stability has featured even more prominently in the discourse of central banks. It has been well documented that central banks in many countries were narrowly focused on price stability and perhaps overlooked the build-up of financial instability during the great moderation period.

The pre-crisis consensus was for unfettered financial sector growth and minimal regulation that was supposed to deliver even more growth. The 2008 crisis made it abundantly clear that financial strength of individual institutions does not add up to systemic stability. That was evident because before the crisis happened, almost every financial institution reported substantial capital adequacy. This made the policy makers realise that while micro-prudential regulations would help determine the strength of a financial entity, they have to be complemented with adequate macro-prudential regulations and anti-systemic risk measures. Preserving systemic stability thus emerged as the cornerstone of central bank policies.

He noted that India’s financial system faces both challenging times and new opportunities as the Indian economy returns to full vitality. New vistas of financial intermediation leveraging on technology and new business models will emerge. With the exponential growth of digitisation and online commerce in India, the Reserve Bank has also directed its policy efforts to put in place a state of the art national payments infrastructure, while ensuring a safe, secure, efficient, cost-effective and robust payments ecosystem.

The Reserve Bank is positioning itself to provide an enabling environment in which regulated entities are catalysed to exploit these new avenues, while maintaining and preserving financial stability. The regulated entities, on their part, need to strengthen their internal defences to identify emerging risks early and manage them effectively. Financial stability is a public good and its resilience and robustness needs to be preserved and nurtured by all stakeholders.

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