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Home / Industry / Banking /  Focus is on long-term stability, says RBI governor Shaktikanta Das

India’s financial system remains strong but extreme risk aversion could turn out to be counterproductive in the current scenario, Reserve Bank of India (RBI) governor Shaktikanta Das said.

In his foreword to the central bank’s bi-annual Financial Stability Report (FSR) released on Friday, Das said financial intermediaries like banks and other financial institutions should augment capital and improve resilience as a top priority.

Preserving long-term financial stability is critical to ensure recovery from the pandemic, Das said, adding that post-pandemic, the focus would be on “calibrated unwinding of regulatory and other dispensations".

“Financial sector stability is a prerequisite for giving confidence to businesses, investors and consumers. We need to remain extremely watchful and focused," Das said in the foreword.

Financial intermediaries will have to reappraise their business models and asset markets must adapt to a new normal in a non-disruptive manner, the governor said. He warned that contagion risks call for constant vigilance by all stakeholders in the financial system.

Das said the RBI report coincides with a growing disconnect between movements in certain segments of financial markets and real sector activity.

“The pandemic hit India in a period of growth moderation. The ensuing disruptions in demand conditions and supply chains have been aggravated by global spillovers. Of late, signs of a gradual recovery from the nationwide lockdown are becoming visible," he said.

Two weeks ago, Das had said that the economic impact of the pandemic may result in higher non-performing assets and capital erosion of banks.

Speaking at the State Bank of India economic conclave, he had said that the banks should conduct periodic covid stress tests on their balance sheets, and also raise capital to deal with any shocks that could come up due to the pandemic.

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