1644830365_zJupH3_shaktikant_das_reuters.jpg 
"The Reserve Bank continues to remain watchful of the headwinds and shall be proactive in taking measures as necessary to ensure financial stability," he added
Photo Credit : Reuters
As the global situation remains grim due to Covid-19 and geopolitical situations, the Indian economy is relatively better placed and drawing strength from its macroeconomic fundamentals, said Shaktikanta Das, Governor, Reserve Bank of India on Friday while speaking at Bank of Baroda’s annual banking conference in Mumbai.
Das said that the financial system is well-capitalised, asset quality indicators have improved, balance sheets are stronger, and banks have returned to profitability.
"We are also seeing a healthy pickup in credit demand. The external sector is well-buffered to withstand the ongoing terms of trade shocks and the portfolio outflows," he said.
The recently released Financial Stability Report of the RBI highlights that the Indian financial system remains resilient and supportive of the ongoing economic revival.
Das said that the banks are well-positioned to withstand even severe stress scenarios without falling below the minimum capital requirement.
"The Reserve Bank continues to remain watchful of the headwinds and shall be proactive in taking measures as necessary to ensure financial stability," he added.
While talking about the recent developments in the forex market, Das said that it has generated intense debate, including predictions of the rupee dropping to record lows as foreign portfolio funds exit India.
"The spillovers from the global monetary policy tightening, the geopolitical situation, the still elevated commodity prices – especially crude – and the lingering effects of the pandemic, all coming together, have become overwhelming for all countries the world over," he said.
He said that even reserve currencies such as the Japanese yen, the Euro and the British pound sterling have not been spared. Portfolio funds are selling off assets and fleeing to safe havens.
"Emerging market economies (EMEs) are particularly affected by capital outflows, currency depreciation and reserve drawdowns, complicating macroeconomic management in these countries," Das mentioned.
While talking about the impact of these spillovers on India, the governor said that it has been relatively modest. In fact, the Indian rupee is holding up well relative to both Advanced and EME peers.
"This is because our underlying fundamentals are strong, resilient and intact. The recovery is gradually strengthening. The current account deficit is modest. Inflation is stabilizing. The financial sector is well-capitalised and sound, " he said.
The external debt to GDP ratio is declining. The foreign exchange reserves are adequate, he added.