The Reserve Bank of India has asserted that the country's financial system continues to be strong and ratings are sometimes discounted by markets.
In the light of credit rating agency S&P cutting India's outlook to “negative”, Reserve Bank of India Deputy Governor K. C. Chakrabarty said the RBI would intervene in the forex market only when there was high volatility in the currency market and not just because of the ratings. “India's financial system is strong and that is what is our internal assessment. The RBI will intervene if there is volatility because of the rating and if there is need to intervene,” Mr. Chakrabarty said.
He was here on Thursday in connection with a national seminar on “Financial inclusion: trends, challenges and policies towards an effective framework for financial inclusion” organised by Crux Management Services.
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Stating that the RBI was examining the situation, he said the central bank would come out with its financial stability report in June and that it would reflect the financial strength of the economy. Mr. Chakrabarty said the bank was trying to understand the situation and it could not make a comment before examining the issue.
Addressing the participants of the seminar, who included top executives of banks, he stressed the need for banks to focus on transactions in accounts opened under financial inclusion. “Financial inclusion has become fashionable, of late, but it has to become a passion,” he said.
Expressing concern over the “reluctance” of banks to open brick and mortar branches in unbanked areas, the RBI Deputy Governor mooted a combination of traditional branch and business correspondent models. Banks should also be careful in collaborating with other agencies, including micro finance institutions as the latter could play only a supportive role.
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