deepak mohanty : wrap up and concluding remarks at the saarcfinance governors ’ symposium wrap up and concluding remarks by mr deepak mohanty, executive director of the reserve bank of india, at the saarcfinance governors ’ symposium, kumarakom, kerala, 10 june 2011. * * * governor dr. subbarao, governors of other saarc member countries, heads of country delegations, dr. reddy, dr. caruana, mr. ninan and distinguished participants from the saarc central banks and friends, it has been a long day of exciting and thought provoking discussions on the very important issue of financial stability. the backwaters of kumarakom and the tranquil atmosphere of zuri has provided the perfect setting for a free flow of ideas throughout the day. the theme of this symposium – financial stability issues – is appropriate for four major reasons, from the stand point of global, regional and india specific considerations : first, financial stability has acquired the centre stage of public policy debate since the global crisis, with animated discussions seeking clarity on the role of central banks, particularly monetary policy. second, financial stability was assigned specific attention in formulating rbi ’ s monetary policy during the period when dr. reddy was the governor of the rbi, and this was reinforced considerably by governor dr. subbarao. thus, in india, the dimension of financial stability was given due attention in the conduct of monetary policy, even before the onset of global crisis. third, india had started using counter - cyclical provisioning norms and risk weights prior to the global crisis, and in the post crisis period such measures – known widely as macro - prudential tools – have become the mainstream consensus. fourth, given the level of development of the financial systems in the saarc countries, the debate on financial stability and monetary policy interactions may be somewhat different from what we see in the advanced financial systems. the development of the financial system, thus, has to be seen as an additional consideration in this debate. going forward, the efforts should be to harness the true potential of finance in promoting growth and development. in that process, increasing globalisation would require dealing with external contagion and managing spillovers. this symposium has provided us the opportunity to learn from each other in the saarc region, and also revisit our country specific perspectives on the emerging international standards. deputy governor dr. subir gokarn in his welcome remarks set

the tone for discussions to follow. he noted how the global financial crisis had shaken our faith on some of the pre - crisis persuasive arguments – what he termed as near truths. he highlighted that an increasing number of central banks had started including financial stability formally in their policy mandates along with price stability. but the definition of financial stability remains largely informal. he emphasised that the financial stability mandate and governance arrangements for central banks must be compatible with their monetary policy responsibilities. for the saarc countries, given the levels of development, he underscored the point that financial literacy and financial inclusion goals should not get marginalised because of the overdrive for financial stability. bis central bankers ’ speeches governor dr. subbarao highlighted issues relating to the mandate of central banks for financial stability in the international and indian context. making a strong case for the central banks to play a key role in ensuring financial stability, governor subbarao outlined the challenges in managing the relative prioritization across multiple objectives. he also talked about the difference between a central bank ’ s role in ensuring financial stability in crisis times vis - a - vis during normal period. the recent trends in arrangements for financial stability giving increased responsibility for both systemic oversight and prudential regulation to central banks and institutionalisation of collegial arrangements are seen as important. a similar move in india is reflected in the creation of the financial stability and development council ( fsdc ). in this context, governor dr. subbarao emphasised particularly the “ d ” in fsdc. this stands for the development dimension of the financial sector. irrespective of the type of new institutional arrangement, he stressed that coordination mechanisms, especially between the government and the regulators, must function in ways that do not compromise the autonomy of the regulators. the conduct of monetary policy in a world with macro - prudential policies could pose both known and unknown challenges. the presentation from mr. caruana provided possible approaches to adoption of macro - prudential measures, with necessary caution. he noted that stable, resilient and less pro - cyclical financial systems improve the effectiveness of monetary policy transmission. he also viewed that macro - prudential policies should not be used to safeguard macroeconomic stability, since there is no substitute to monetary and fiscal policies for attaining that goal. he cautioned that expectations from macro - prudential policies should not be ambitious, since without a range of reinforcing policies and instruments, the effectiveness