RBI :India's Financial System strong despite S&P downgrades

Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty was quick to reply in reaction to S&P(Standard & Poor's) downgrading  India's sovereign credit rating from stable(BBB+) to negative(BBB-)( just one step away from junk bond status) that the country's financial system is strong. This measure was taken in order to calm India's capital market which has been hammered by the massive FII(foreign institutional investors) outflow  from the country & negative speculation surrounding the S&P last downgrading of  India's 10 top banks which include the State Bank of India (SBI), ICICI Bank and HDFC Bank .

He was assertive on the fact that the country’s financial system was strong and all risks to growth and the economy were only internal, in terms of productivity and efficiency.

“It is only an outlook change and what is coming in the rating is already in the know. The market has already discounted it,” he said, to a question on the impact of the rating downgrade on external borrowings, among other things. 

RBI might intervene if the market volatility goes high in reaction to this downgrade.He said pressure was already on the government to improve the fiscal situation and the finance minister had indicated through the budget on what was being sought to be done.

To get a clearer and comprehensive picture of Country's Economic & Fiscal conditions ,RBI will issue its financial stability report in the month of June. While RBI undertakes overall diagnosis of the country’s economic and financial parameters every six months, it is a long drag before combining all the reports and informing the Financial Stability and Development Council, he said. The report is then made public. 

Besides the fiscal & economic growth constraints ,this downgrading also happened due to ineffectiveness of UPA led Central govt  hurt by corruption scandals and held back by rebellious coalition partners, which made it far from clear that PM Manmohan Singh will be able to deliver enough reform to improve perceptions in both domestic and international cricles.