India's financial system still strong: RBI

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SME Times News Bureau | 26 Apr, 2012
India's financial system was strong and there was nothing to worry about, Reserve Bank of India (RBI) Deputy Governor K.C. Chakrabarthy said Thursday after Standard & Poor's (S&P) scaling down of the country's credit rating outlook to negative.

"Indian financial system is still strong. This is our internal assessment," he told reporters on the sidelines of a national seminar on financial inclusion in Hyderabad.

"As of now there is nothing to worry but we are examining. If something happens we will let you know," he said when asked to comment on the global rating agency's warning of downgrading.

The Central Bank official said RBI's financial stability report in June would give the correct picture.

"We see symptoms but it is a market sensitive information. I can't give it. I have to first report to Financial Stability and Development Council (FSDC)," he said in response to a question.

He said the development should not impact the economy or external borrowings.

"People don't know what is coming in the rating. It means market already discounted that," he said, declining to comment further on the S&P report without studying it.

Chakrabarthy said the RBI would make currency intervention only if there is volatility in the market because of rating and if it calls for an intervention.

He said the government was already under pressure and was trying to contain deficit. "If the government is unable to do it there are many compulsions."

Asked if the cost of external borrowings would go up with the rating, he said normally costs goes up whenever the rating goes down. He, however, pointed out that the market has already discounted that rating will be downgraded.

"All our risks are internal. We are responsible. We are not working hard," he remarked when asked if the risks to Indian economy are external or internal. "People need to work hard."

The RBI deputy governor said there can't be high growth without low inflation. "High inflation is always inimical to growth. This tussle between inflation and growth will continue anywhere in the world."

On interest rate cut, he said RBI governor D. Subbarao had already stated that the probability of a future rate cut was small but not impossible.