RBI to switch to macro-prudential approach from micro-regulations regime

The Reserve Bank of India (RBI) will be renewing its regulatory stand for this it is planning to shift from a micro-regulations regime to a macro-prudential approach

The central bank's policy main focus will be on recurring which help it in dealing with recession.

Addressing a banking seminar in Mumbai, RBI executive director, Anand Sinha said, ''The policy (approach) needs to be modified from micro prudential to macro-prudential. The work is going on ensure that policies do not reinforce a downturn.''

Sinha told that across the world central banks have adopted the stance since the crisis.

He further added besides focusing on counter-recurring measures, the central bank will also take in consideration issues like compensation policies and the treatment of unregulated entities.

Sinha informed that the central bank will continue using both conventional and unconventional tools to maintain sufficient liquidity in the banking system.

He told that the country's economy is well protected from the current global disorder by the well-regulated banking industry and central banks across the world are working to avoid such a situation in future.

Sinha notified that banks should aim on capital-building in normal times; as they require more capital to survive in times of economic difficulties.

Speaking about loans he said that the reserve bank will prefer that banks should streamline loans, especially to small industries. He said that rather than looking for relaxation in non-performing assets norms, banks should be given more time for streamlining such loans.

RBI deputy governor Usha Thorat had expressed similar observations recently when she said that banks should set more time to restructure their loans to micro, small and medium enterprises (MSMEs). This would help in a win-win situation for both banks as well as customers.

The Indian overnight cash rates ended flat on Monday with lower second week reporting cycle demand for funds. However most of the banks have sufficient funds to meet reserve requirements.