 "Shaktikanta Das")
Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said there shouldn’t be exuberance in lending, and there should be some correlation between deposit base and credit growth.
Das said the central bank had not mandated any number on credit deposit ratio, and neither do they propose to. While he acknowledged signs of exuberance in personal and unsecured loans, he reassured that the central bank had taken pre-emptive measures to prevent potential stress in the banking sector.
“All that I can say is that there should not be exuberance in lending. Number two, there should be some correlation between your deposit base and your credit growth. There should be some correlation. But in terms of hard-coding it, in terms of a particular number, there is no such proposal in our mind and we have not prescribed any such number,” Das told CNBC-TV18 in an interview at Davos.
The RBI governor cautioned against interpreting share prices as a direct reflection of a company’s fundamentals. He emphasised that stock prices are influenced by various factors and may not necessarily represent the financial health of a company, including those in the banking sector.
The disappointing earnings for the December quarter had led to an over 8 per cent fall in the stock of HDFC Bank on Wednesday, accounting for more than half of the losses for both Sensex and Nifty — where it holds a weighting of 14.7 per cent and 12.7 per cent, respectively.
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Further, the RBI governor urged institutions like the International Monetary Fund (IMF) to recognise the efforts of emerging market economies in protecting their domestic economies from global currency fluctuations and volatility. He said the stability of the rupee could be attributed to a number of factors beyond the RBI’s intervention.
India’s robust macroeconomic fundamentals and the stability inherent in the Indian financial sector contributed to the stability of the rupee, he said. Additionally, the foreign capital inflows have played a pivotal role in maintaining the rupee’s stability. He specifically noted the surge in foreign portfolio investment (FPI) inflows, highlighting India’s position as one of the larger recipients, and underscored the positive impact of foreign direct investments (FDI) on the overall resilience of the Indian currency.
“The rupee has remained stable because of India’s strong macroeconomic fundamentals, stability of the Indian financial sector, and return of foreign capital inflows. The FPI inflows have increased…and FDI, India is one of the larger recipients. So, Indian currency and our external sector is also very robust. With a forex buffer the investors have greater confidence in India's ability to service its external obligations. With all these confluence of factors, naturally the rupee has remained stable,” he said.
The IMF reclassified India’s exchange rate regime, shifting it from “floating” to a “stabilised arrangement” for the period between December 2022 and October 2023. This change is linked to perceived interventions by the RBI in the foreign exchange market, as the rupee exhibited a limited range against the US dollar. According to the IMF report, these interventions might have exceeded the required levels for addressing disorderly market conditions.
