Financial instability brings bigger long-run consequences than any short-term gains, says RBI Governor

The Reserve Bank of India (RBI) Governor Sanjay Malhotra on November 20 said that financial instability can have much bigger consequences for the long run, they can have much more losses than the gains achieved due to the short term.

“We do realize that short term growth can be achieved at the cost of financial stability, but financial instability can have much bigger consequences for the long run, they can have much more losses than the gains achieved due to the short term,” Malhotra said while addressing at the VKRV Rao Memorial Lecture in Delhi.

He added that while financial stability remains the bedrock, there are few other objectives such as prudential aspects of liquidity and capital requirements to ensure the safety and the soundness of financial operation in the interest of all the stakeholders, which may or may not have financial stability implications.

Secondly, conduct related measures for consumer protection, assistance in law enforcement, for example, money laundering, and that's an issue which has engaged our attention, he added.
Governor said that the central bank have hybrid approach. “What we have done is that we are gradually moving towards a principle-based regulation approach, but retaining some of the rules that are already there.”