Mumbai: Warning that India could face “prolonged repercussions” of the global economic crisis, finance minister Pranab Mukherjee said the country would have to remain alert to deal with the situation through real-time policy responses.
“The global financial scenario continues to be volatile and uncertain... the indicators are that we may have to face prolonged repercussions,” he said during an award function in Mumbai on Saturday night .
In order to deal with the impact of emerging global situation, Pranab said, “We have to be alert to shape real-time policy responses, reform systems, improve the regulatory framework of our institutions and make the most of the opportunities coming in our way.”
Unlike the financial crisis in 2008-09, which was caused by the banking system in the US, he said, the current round of troubles emanate from fear of sovereign default in Greece, Italy and some other euro zone countries.
The global crisis is “deepening”, he said quoting the Global Financial Stability Report of the International Monetary Fund (IMF).
India, he added, cannot remain unaffected by the developments and pressure would be felt on external trade and capital flows.
However, Pranab added, “These developments are markers of shifting balance in the global economy, presenting new opportunities for us... We have the necessary fundamentals to take the economy on a path of sustained high growth in the medium to long-term.”
The Indian financial sector, Pranab said, will have to be prepared to deal with the “possible systemic impact” of sovereign debt crisis in the euro zone countries.
“We also need to overcome domestic concerns including those related to risk management practices, capitalization issues of the public sector banks and the threat posed, in some cases, by their growing non-performing assets,” he said.
However, despite some of the concerns, he said Indian banks are safer than their counterparts in the west.
“The Indian banking system is more stable than those that operate in many of the developed countries. The prudent risk practices that the Indian banks follow make them far safer than many of their global peers,” the finance minister said.
In contrast to the financial system in the West, he said, the domestic institutions are “well capitalized with moderate levels of leverage, a stable deposit base, and relatively safe investments.”
Referring to the initiatives being taken by the government to carry forward the financial sector reforms, Pranab said, “Legislations have been introduced in the Parliament to address some of the issues in the financial sector, including insurance, banking and pension sectors.”
As regards the pending legislations, he said, the Banking Laws (Amendment) Bill, 2011, will strengthen the Reserve Bank of India’s (RBI) regulatory and supervisory powers.
The proposed changes in the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970, will grant greater flexibility to nationalized banks in raising capital to meet the requirements of expanding business, he said.
The minister also called upon the private sector banks to play a pro-active role in promoting financial inclusion.