Banks’ high cap needs may hit credit flow: RBI

Banks’ high cap needs may hit credit flow: RBI

Mumbai: High capital requirements for banks carry the risk of hurting lending to productive sectors in emerging economies, a top central bank official said on Monday.

Managing financial risk for emerging economies is also trickier as most of the sources of risk lie outside their jurisdiction, said Shyamala Gopinath, deputy governor at the Reserve Bank of India (RBI).

“Emerging economies are faced with the challenge of managing volatile capital flows, which is not a source of systemic vulnerability for developed economies," Gopinath said at the FSA Turner Review conference in London.

The speech was uploaded on RBI’s website on Tuesday.

Although a harmonized framework is needed globally to deal with any major financial crisis, there are some key differences like a trade-off between financial stability and financial development in developed and emerging economies, Gopinath added.

“For instance, with regard to identification and mitigations of sources of systemic risk, the emerging market concerns are heightened because of the fact that many sources of systemic risk lie outside their jurisdictions," she said.

Gopinath emphasized on the need to move to exchange-traded platforms from over-the-counter markets in derivative transactions.