deepak mohanty : managing capital flows welcome remarks by mr deepak mohanty, executive director of the reserve bank of india, at the reserve bank of india - asian development bank conference on “ managing capital flows ”, mumbai, 19 november 2012. * * * ladies and gentlemen, 1. on behalf of the reserve bank of india and my own behalf, i extend a hearty welcome to you all to this conference on managing capital flows, in this great city of mumbai. as you know the conference is co - sponsored by reserve bank of india and asian development bank ( adb ). mumbai is not only the commercial hub of india but also has a rich heritage. i hope you will have some time to experience the vibrancy of mumbai. 2. turning to today ’ s conference, there could be no two opinions about the topicality of the theme. what is worrying is that the volatility in capital flows has increased significantly in the recent years particularly since 2008 crisis. capital flows management is therefore one of the biggest challenges for policy makers particularly in emerging and developing economies. capital flows are a complex phenomenon having both benefits and costs. their role in enhancing the domestic investment and the potential to trigger financial crisis can be seen as the two sides of the same coin. 3. capital flow management has been perceived to be challenging particularly in the context of mundell ’ s “ impossible trinity ” of fixed exchange rate, independent monetary policy and open capital account. all the three cannot be pursued simultaneously, and at least one should be sacrificed. which one has to be sacrificed? well, it depends upon country - specific situation and available policy options. this reminds me of an old adage in hindu mythology, which is somewhat similar to impossible trinity : that the idols of brahma ( the creator ), vishnu ( the preserver ), and shiva ( the destroyer ) cannot be kept under the same roof! among three, who should be kept out? there is no rule or convention. it is left to the choice of individual households and their belief and faith. 4. be that as it may, world view on capital flows and capital controls has swung in both directions since the days of bretton woods. in the 1940s, while keynes and white, the architects of bretton woods, favoured capital controls, there were others who had opposite views. until recently, the wisdom of “ washington consensus ” favoured capital account liberalisation and free capital flows. the asian crisis put the idea of full capital

guidelines are issued to banks from time to time on parameters for restructuring. the extent of active interaction between individual borrowers and banks is, therefore, not clear. it is increasingly felt that individuals are not in a position to take full advantage of the guidelines issued to the banks for variety of reasons. these may include inadequacies in managing their finances especially delinquent accounts. further, individuals may not be able to articulate their financial situation adequately to the banks. it will be in the interest of the banks themselves to help individual borrowers through appropriate credit counselling. public policy could, therefore, have an advisory role in encouraging mechanisms in the form of credit counselling in regard to individuals. there are a variety of ways in which this has been accomplished in different countries, but in india we are just beginning to address the situation. some urgency has been lent to this issue in india in view of rapid growth in consumer loans, housing loans and the more recent emphasis on financial inclusion. it is interesting to note that the terms of reference of the financial inclusion task force initiated by the treasury of the united kingdom to consider solutions to the problem of financial exclusion identifies three key areas. this includes face - to - face money advice in addition to access to banking and access to affordable credit. global practice the first well - known credit counselling agencies were created in 1951 in the united states when credit grantors created the national foundation for credit counseling ( nfcc ). their stated objective was to promote financial literacy and help consumers to avoid bankruptcy. credit counselling, however, came into its own as a result of the passing of the housing and urban development act in 1968. under this act, the us department of housing and urban development was allowed to authorize public and private organizations to provide counselling to mortgagors. the resulting services and infrastructure to provide them led to the development of the credit counselling industry. in 1993, the association of independent consumer credit counseling agencies ( aiccca ) was founded in the united states, citing a need for industry - wide standards of excellence and ethical conduct. this formally organized the nfcc ’ s competition. the aiccca was formed from the group of counselors who favored telephone delivery of debt management programs. the nfcc was, in the beginning, strongly opposed to this telephone business model, primarily favoring face - to - face counselling as a more effective solution. eventually, all organizations practiced both phone and faceto - face processes with some agencies