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Even best policies might fail to address the economic crises RBI

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Even the best of macro- prudential policies might fall short while addressing serious economic crises and might not be able to foresee such challenging situations, said Reserve Bank of India ( RBI) Deputy Governor R Gandhi.
He was speaking a conference in Chennai on Friday.
Macro- prudential policy is the approach to financial regulation aimed at mitigating the risk of the financial system as awhole. According to him, the challenge is to establish an implementable framework to deal with the emerging systemic risks at an early stage.
“Future crisis also may not replicate any of the past ones. Hence, history might not always be of help. Complacency may slowly set in even as our memories of bad times are gradually fading away,” he said. Gandhi said the banking regulator would make bond markets safer and easier to access, which would attract companies to raise money through corporate bonds.
“We are trying to limit access to the banking finance, so that corporates can look at the bond market. Besides, we are taking measures to make information available and bring transparency to make the bond market more accessible,” he added. He said RBI has called for suggestions, based on which it would take appropriate decisions.
He, however, declined to speak further on this. Gandhi noted there should be a methodology to measure the profitability and efficiency after taking into account what public sector banks ( PSBs) do as part of their corporate social responsibility, which doesn’t bring return to the banks. Thanks to the implicit government support they get, PSBs are considered relatively immune to destabilising impacts. “ However, the same sense of safety evades PSBs when it comes to their valuations,” said Gandhi.
Business Standard, New Delhi, 6th Feb. 2016

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