HYDERABAD: The probability of a knock-on impact of the ongoing banking crisis in the United States and Europe in India is quite limited because our banks and financial system are safe, former Reserve Bank of India (RBI) governor Duvvuri Subbarao said here on Saturday.
“The retail deposit base of our banks is quite diversified. Credit quality is good. There is enough liquidity. Our banks, in particular, have SLR (statutory liquidity ratio) requirement which is another safety buffer. We have to be careful and watchful but the probability of a knock-on impact like (what) happened during the global financial crisis of 2008-09 is quite limited,” he said.
He also said he sees no likelihood of a repeat of the 2013 taper tantrums, when foreign institutional investors pulled money out from equities and bonds leading to the Rupee depreciating 15% between May 22 and August 30, 2013, forcing RBI to hike interest rates by 1% during his tenure as its chief. The Indian taper tantrum was the result of a US investors reaction in May 2013 to a Fed announcement on tapering of bond purchases in the near future.
“The situation today is a lot different from the situation in 2013. Then there was a lot of pressure built up in the Rupee exchange rate. Our foreign exchange reserves were quite limited. Fiscal deficit was high but today the situation is different,” he said on the sidelines of the launch of former IAS officer G Kumaraswamy Reddy’s autobiography `A life in the civil service’.
He added the Rupee is tracking more or less fundamentals. “Fiscal deficit is under control. Current Account Deficit, we were worried about it going beyond safety limits, but now we believe that even this year it will be quite within safe limits. A bit above what we experienced over the previous few years but certainly within safe limits. We have enormous foreign exchange reserves, so I believe a repeat of the 2013 taper tantrum pressure is unlikely today,” he said.