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Indian Merchants’ Chamber Mumbai June 5, 2013 Dr. Duvvuri Subbarao Governor

The Global Financial Crisis and the Indian Financial Sector - What Have We Learnt and How Have We Responded?. Indian Merchants’ Chamber Mumbai June 5, 2013 Dr. Duvvuri Subbarao Governor Reserve Bank of India. 1. Our World View of the Crisis. 2. 2. Lessons of the Crisis

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Indian Merchants’ Chamber Mumbai June 5, 2013 Dr. Duvvuri Subbarao Governor

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  1. The Global Financial Crisis and the Indian Financial Sector - What Have We Learnt and How Have We Responded? Indian Merchants’ Chamber Mumbai June 5, 2013 Dr. Duvvuri Subbarao Governor Reserve Bank of India 1

  2. Our World View of the Crisis 2 2

  3. Lessons of the Crisis Price stability and macroeconomic stability do not guarantee financial stability. No country is an island. Financial markets are not self correcting. It is difficult to detect signs of pressure building up in real time. A collection of rational financial institutions does not necessarily imply a rational financial sector. 3 3

  4. Converting Lessons into Policies 4 4

  5. Emerging Economies and Global Reforms 5 5

  6. Specific Reform Issues (Three Questions) (i) What have we leant at the global level? (ii) What has been the global response? (iii) How have we, in India, responded? 6 6

  7. Five Specific Issues (i) Migration to BASEL - III (ii) Shadow banking - extending the perimeter of regulation (iii) Subsidiarization of foreign banks (iv) OTC derivatives market (v) Safeguarding financial stability 7 7

  8. Five Specific Issues 1st Issue Migration to BASEL - III What have we learnt? What has been the global response? How have we, in India, responded? 8 8

  9. Basel-III Capital Requirements of Banks (As % of RWA) ------------------------------------------------------ Basel-III Basel-III (International) (RBI) ------------------------------------------------------------------------------------------------- Common Equity Minimum 4.5 5.5 Capital Conservative Buffer (CCB) 2.5 2.5 ------------------------------------------------------------------------------------------------- Total 7.0 8.0 ------------------------------------------------------------------------------------------------- Tier I Capital Minimum 6.0 7.0 Minimum + CCB 8.5 9.5 ------------------------------------------------------------------------------------------------- Total Capital Minimum 8.0 9.0 Minimum + CCB 10.5 11.5 -------------------------------------------------------------------------------------------------

  10. Five Specific Issues 2nd Issue Shadow Banking Extending the Perimeter of Regulation What have we learnt? What has been the global response? How have we, in India, responded? 10 10

  11. Five Specific Issues 3rd Issue Subsidiarization of Foreign banks What have we learnt? What has been the global response? How have we, in India, responded? 11 11

  12. Five Specific Issues 4th Issue OTC Derivatives Market What have we learnt? What has been the global response? How have we, in India, responded? 12 12

  13. Five Specific Issues 5th Issue Safeguarding Financial Stability What have we learnt? What has been the global response? How have we, in India, responded? 13 13

  14. Five Specific Issues 5thIssue (contd.) Safeguarding Financial Stability The role of the Reserve Bank in safeguarding financial stability Financial Stability and Development Council (FSDC) FSLRC recommendation on systemic risk management in India 14 14

  15. Conclusion What we learnt from the crisis about the financial sector? Efforts at the global level on financial sector reforms Five specific reform areas Global response Indian response 15 15

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