central banking in uncertain times : the indian experience opening plenary address by shri shaktikanta das, governor reserve bank of india delivered at the summer meetings organised by central banking, london, uk on june 13, 2023 in recent times, especially since the outbreak of the covid - 19 pandemic, central banks – who are at the core of monetary and financial systems – have been called to do “ heavy lifting ” well beyond their traditional mandate. central banks have navigated through unchartered waters during the three black swan events – the pandemic, the war in ukraine and the unprecedented scale and pace of global monetary policy normalisation – all in the span of three years. more recently, central banks had to quickly change gears from providing stimulus to pandemic ravaged economies to battling inflation with all ammunition at their disposal. even as the battle against inflation was ongoing, the banking turmoil in certain advanced economies ( aes ) posed the awkward trade - off between financial stability and price stability. this extraordinary period of global turbulence has indeed been extremely challenging for central banks and central banking. 2. in my address today, i propose to highlight the reserve bank of india ’ s response to the multiple challenges of covid - 19, surge in inflation, growth slowdown and threats to financial stability. i also propose to enumerate the lessons learnt which may become a part of central bank operating procedure for such events in the future. covid - 19 response 3. the covid - 19 pandemic scarred the global economy, causing unimaginable loss of life and livelihood. in india, our response amidst the imposition of nation - wide lockdown and social distancing was prompt and decisive. we were perhaps amongst the first few central banks to have set up a special quarantine facility with about 200 officers, staff and service providers, engaged in critical activities to ensure business continuity in banking and financial market operations and payment systems. our monetary policy committee ( mpc ) reacted swiftly by reducing the policy repo rate sizeably by 115 bps in a span of two months ( march - may 2020 ). unlike advanced economy ( ae ) central banks which eased rates close to the zero - lower bound, we did not reduce the policy repo rate below our inflation target of 4 per cent. together with other actions in the liquidity front, this helped us in supporting growth without fuelling inflationary pressures. this also helped in undertaking a faster reversal of stance later,

on the deposits ( barring saving deposit ) and lending side, the banking system has also been accorded the flexibility to price their loans as needed, keeping in view the cost of funds and the appropriate credit and term premia. third, it is absolutely essential to ensure adequate credit flows to meet emerging needs. thus, even as banks have greater flexibility to lend and price their loans, rbi has urged that credit to sectors such as agriculture and small and medium industries are critical for the overall development of the economy. policies over the years have attempted to ensure adequate flow of credit to these sectors, but based on commercial terms and in a non - micro regulated manner. fourth, public policy has infused greater competition in the banking system by permitting entry of private sector banks. this has given a wider choice to customers ( both lenders and borrowers ) to approach their bank of choice. at the same time, it has created an incentive mechanism for banks to enhance their efficiency. fifth, at the same time, public policy has, by and large, preserved the branch network of the banking system to ensure that banking services continue to reach the remote corners of the country. sixth, prudential standards are being imposed on banks to bring them on par with international best standards. thus, while banks have greater freedom to take credit decisions, capital adequacy norms, exposure norms, income recognition rules, asset liability management systems in banks not only help to identify risks but also contain risks thereby contributing to financial stability. seventh, the system is more transparent now than before both in terms of disclosure of accounts by banks and data / information disseminated by the central bank. looking at the data on the banking system, there is a contention that the banking system is more vulnerable now than before. my response has been that it is not so. there is a degree of transparency that ensures awareness and corrective action today. the indian banking system is not unstable or vulnerable, but there are problems of efficiency. eighth, in most areas, be it deposits or credit or investment or risk management, public policy has moved away from micro - regulation to macro - management. while rbi issues general guidelines, it is now more often left to individual boards of banks to implement these measures and set internal rules and guidelines. ninth, initiatives have also been taken to develop financial markets in a gradual manner and integrate them cautiously. by developing the money market, it is ensured that the signals of the central bank are transmitted to the system without friction.