While generally sharing the problem of high corporate leverage with most emerging markets as well as with the developed world, India presents some exceptions. These exceptions are in the form of moderately higher growth, favourable demographics and persistent inflation. The accommodating policy stance and other conventional and unconventional monetary and fiscal measures taken in the immediate aftermath of Global Financial Crisis have been long unwound. We have been fighting a battle against high inflation and have been on a tight monetary policy regime for some time. You may be aware that we have moved to a CPI-based inflation targeting regime sometime back and our monetary stance and liquidity management are being calibrated accordingly. India also enjoys demographic dividend in the form of a young, growing population and hence, the domestic demand is likely to continue growing for the foreseeable future. In fact, we need to grow at a higher pace consistently if the demographic advantages are not to be frittered away. India has been the beneficiary of the capital flows as it is seen as a promising investment destination and the government and the Reserve Bank of India are committed to continue to press the advantage by ushering in necessary reform measures.
While the economic fundamentals of the country are on a much sounder footing than three years ago, like the rest of the world we are also wary of the impending market volatility that could emerge from crystallisation of any of the risk events that I alluded to earlier. A significant area of concern for some EMEs, especially for us in India, is slowdown in inward remittances from non-residents. Depressed oil prices have created stress in the oil-exporting countries in the Middle East, which has a significant population of migrant Indians. Already a feeble trend of decline in remittance is established and if oil prices remain depressed for an extended period of time, immigrant population may lose their jobs, face retrenchment and the consequent repatriation may lead to social tensions back home.
The key goal that we have set for ourselves is to restore order and normalcy as soon as possible so that the financial system could continue to subserve the needs of the real economy on an on-going basis. The GDP growth of 7.1 per cent (Q1 2016-17), the current level of oil prices and measures to contain gold import has helped us move towards current account surplus, the rupee has been reasonably stable and macros are more or less comforting.
In a dynamic environment, being in a relatively safe zone cannot be reason enough for complacency. As I mentioned earlier, we hold the potential for achieving still higher rates of sustainable economic growth. We are mindful of the need for more structural reforms to address issues relating to capital formation, infrastructure creation, low capacity utilisation, fiscal consolidation, subsidy management, etc. As a bank-dominated financial system, it is important for us that banks have the ability to undertake intermediation in a productive and efficient manner. Hence, an efficient transmission of cuts in policy rate to lend borrowers has also been on our active agenda. But the stress in the bank balance sheet has been a hurdle with provisioning for bad debts taking a toll on the bottom line. This is mainly on account of a RBI drive for balance sheet repair in the banking system resulting generally from corporate balance sheet distress. We firmly believe that once the banks have a healthier balance sheet, they would be ready for dispensing credit and aid growth.
Especially for augmentation of the capital in public sector banks, we have been closely engaging with the government. Several measures have been taken by us to deal with the asset quality issues in the banking system. A centralised repository of large credits has been operationalised, which enables to have a correct picture of indebtedness of large corporate houses. Several other tools were brought in to help the banks for revitalisation of stressed assets on their books. A framework for enhancing credit supply for large borrowers through market mechanism has also been unveiled recently with the underlying aim to limit concentration risk of large borrowers while facilitating access of borrowers to funds from the bond market. In order to curtail exposure of banks to large corporates, the single and group exposure norms have been made stricter and more expensive beyond a limit. These measures are meant to implicitly facilitate better credit flow to micro, small and medium enterprises (MSME) and the retail sector.
In sum, there is realisation that the banking sector needs to be declogged and a multitude of options must be made available for better and efficient credit dispensation. Measures have also been taken to enhance resolution mechanisms, strengthen the existing payment and settlement system and to leverage technology to achieve greater financial inclusiveness. A set of differentiated banks have already been licensed for better penetration of financial services and to meet requirements of specific sectors. The framework for non-bank financial companies has been strengthened and work is currently in progress to study the entire gamut of regulatory issues relating to FinTech in view of the growing significance of FinTech innovations and their interactions with the financial sector as well as the financial sector entities.
Talking of FinTech, I am also reminded of cyber risk, which has emerged as a major vulnerability for financial institutions across the world as the trend has shifted from targeted attacks on individuals to institutions. The cyber attack on the Bangladesh Central Bank is a case in point. Regulation of peer-to-peer lending platforms is another item on the RBI's active agenda, which can potentially bring complementarity to banking services.
Speech by S S Mundra, deputy governor of Reserve Bank of India, at the 7th SEACEN seminar for Deputy Governors in-charge of Financial Stability and Supervision in Mumbai on September 22