Reserve Bank of India (RBI) Governor Urjit Patel has said that demonetisation move will have far reaching changes towards a transformative effect on the economy going forward, despite some short-term disruptions and public hardship. On the eve of the deadline for citizens to deposit demonetised currency in banks, he also cautioned that there was little room for complacency and it is important to guard against sporadic volatility in financial markets.
In his foreword to the half-yearly Financial Stability Report (FSR), Patel said that the withdrawal of specified bank notes (SBNs) will impart far reaching changes going forward. It is expected to significantly transform the domestic economy. He said the increasing adoption of digital modes of payments will lead to greater intermediation, efficiency gains, accountability and transparency.
RBI Governor acknowledged there have been short-term disruptions and hardship to the public because of the demonetisation of high value currency. Patel also said that introduction of reform measures like the Goods and Services Tax on indirect taxation and the Bankruptcy Code for resolving asset quality stress will impart resilience to the economy.
He said the global financial crisis led banks to do stress test and match risk appetites with risk taking capacity, and added that last year's asset quality review and the subsequent corrective actions, which led to a spike in bad assets and shaving profits, are efforts in the same direction. Further, he said the stress shown by the domestic banking system is partly reflective of legacy issues but enhanced transparency has helped to reinforce the stability of India's financial system. On the domestic macroeconomic front, he said that condition remains ‘stable’ with a cool-down in inflation though the growth momentum has slackened recently. The RBI had revised downward the gross value added (GVA) growth for 2016-17 to 7.1 percent from 7.6 percent, with evenly balanced risks.