Mumbai:
Even as a multi-speed recovery is struggling to gain traction, infusing hope,reinforced by positive news on vaccine development, a second wave of infections and new mutations of the virus have spread heightened uncertainty, threatening to stall the fragile recovery, said Shaktikant Das, governor, Reserve Bank of India.
In his forawrd in the latest Financial Sytability Report(FSR), released by the RBI on Monday, Das has cautioned the disconnect between certain segments of financial markets and the real economy that has been accentuating in recent times, both globally and in India.
Stretched valuations of financial assets pose risks to financial stability.Banks and financial intermediaries need to be cognisant of these risks and spillovers in an interconnected financial system.
As growth impulses take root, the private sector capex cycle should revive as existing capacities get utilised and new capacities are added, he said..
Although a recovery in economic activity from the lows of March and April 2020 is underway, it is far from being entrenched and output remains below pre-pandemic levels.Congenial financial conditions have been put in place to support the recovery. The overarching objective is to mitigate the impact of COVID-19 and strengthen the return to sustainable and inclusive growth with macroeconomic and financial stability, he explained..
This will require the financial system to intermediate expanded growth requirements of Indian business.
The RBI has further said in view of the multifarious risks arising in the wake of the COVID-19 pandemic, the Insurance Regulatory and Development Authority of India (IRDAI) constituted a Working Group to explore the possibility of addressing these risks through the mechanism of a “Pandemic Risk Pool”.
The Group has proposed a Government backstop of about Rs 75,000 crore in the initial stages, investment of pool premium collected in Government securities
or specifically designed Government bonds and mandatory participation for the sectors which are covered..