RBI Governor's keynote address, FIMMDA-PDAI annual conference

In the keynote address at the 22nd FIMMDA-PDAI Annual Conference, Shri Shaktikanta Das, Governor of RBI, on January 27, 2023 discussed the current economic scenario and the role of the RBI in promoting financial stability and fostering economic growth.

To place his speech in perspective, let’s look at some figures to understand how far we have come:

  • Nominal GDP increased from ₹64 lakh crore for FY 2010 to ₹273 lakh crore for FY 2023.

  • External trade also increased over four-fold from ₹29 lakh crore to ₹137 lakh crore during the same period.

  • Trade to GDP ratio has risen to 45% in 2021 from 25% in 2000.

  • FDI has risen sharply by two and a half times since 2010.

  • The flow of resources to the commercial sector in India almost doubled from ₹12 lakh crore in FY 2012 to ₹22 lakh crore in FY 2022. While banks continue to be a dominant source of financing, market borrowings of the commercial sector increased from ₹74,000 crore in FY 2012 to ₹3,16,000 crore in FY 2022.

Some highlights from his speech:

Crisis management

The RBI has responded well to times of turmoil in the past. You can read about the response to each crisis in his speech but here is the common thread underlying all the responses:

  • All liquidity management operations by the RBI, including measures for mutual funds and NBFCs, have always been through banks which are the liquidity conduits for the RBI even in peace times.

  • There was no dilution of collateral standards which ensured that the RBI remained cushioned from counterparty risks.

  • Most of the measures this time around were time-bound.


Reforms have been aimed at deepening onshore financial markets and increasing the efficiency of price discovery. These include:

  • Removing market segmentation by simultaneously easing non-residents’ access to domestic markets and allowing residents to access offshore markets.

  • Expanding the participation base by encouraging non-resident participation in financial markets and retail participation through the provision of easy access, for example through the Retail Direct and FX Retail platforms.

  • Facilitating more sophisticated users to access markets for their hedging needs and to express their views on market movements.

  • Promoting innovation through the introduction of a wider variety of products which can be customised to the needs of market participants.

  • Ensuring fair user conduct through protection of the retail user and a sound, receptive and a customer suitability framework.

Interest rates

He hinted at high policy rates for a longer duration being a distinct possibility. We have also covered this in our latest newsletter.

Financial markets:

The hits:

  • Liquidity in the government securities and the overnight money markets have grown, but bid-ask spreads remain narrow, reflecting efficiency in price discovery.

  • Overall trading volumes have grown in the forex market and a suite of hedging products have emerged.

  • Volumes in the interest rate swap market have grown consistently and new products in these markets are also developing.

  • Onshore and offshore markets are getting increasingly integrated with narrowing of forex and interest rates across the markets.

  • Non-resident participation in markets is growing.

The misses:

  • Secondary market liquidity in g-secs is concentrated in a few securities and tenors.

  • The MIBOR-based OIS remains the only major liquid product in the interest rate derivative market.

  • A term money market still hasn’t taken off properly in spite of a host of policy measures.

  • Access of the retail segment to markets, especially derivative markets, needs to improve further.

  • In the forex markets, while corporates benefit from the tight bid-ask spreads, smaller users continue to face pricing disadvantages in spite of regulatory requirements for fair and transparent pricing.

  • There is still a need for improvement in ensuring liquidity for retail investors in the government securities markets.

The current environment

Considering the international environment, India is resilient, drawing strength from its macroeconomic fundamentals. Its financial system is robust and stable.

Banks and corporates are healthier than before the crisis. Bank credit is growing in double digits.

While inflation remains elevated, there has been a welcome softening during November and December 2022. Core inflation, however, remains sticky and elevated.

De-globalisation and protectionism are gaining ground thus it is necessary to build and strengthen bilateral trade relations to deal with such challenges.