Banking sector works best in stable economic environment

Our share in International Finance is negligible and hybrid instruments that lead the Financial Crisis in Developed World never entered our Banking Sector. However, recession in Developed Countries may impact Banking Sector through reversals in capital inflows and adverse market expectations causing sharp correction in asset prices and exchange rate pressures, says, Field General Manager (Northern Zone), D.S. Tripathi in an interview with Tarun Bhardwaj

TE: What is your assessment of the current situation?
There are increasing concerns about the recovery in the advanced economies losing momentum, High energy and commodity prices appears to be feeding into a negative cycle of persistent unemployment and depressed housing prices in US, while the prospect of sovereign default and its real and financial consequences dominates the European policy discussion. The situation can be identified with lack of decisiveness on the part of the Developed World and dearth of initiatives from Emerging Economies to play a larger role in world Economy.
It may also be observed that in the rapidly globalizing world, decoupling is not working. Hence, Emerging Markets can not remain Unscathed from the downturn in Developed world because of better macroeconomic policies, robust foreign exchange reserves and resilient financial flows. Therefore, it is necessary that global imbalances are redressed through global coordination for the sake of Global stability.
TE:  Is the Developed World staring at a lost decade?
The last decade about rise of Chindia or more widely emerging markets in the world of Trade & Finance. It was a period of great convergence between Developed and Emerging Economies. The  IMF forecast that Emerging Economies will continue to expand and growth will be four percentage points more than Developed World in next two years. The economic power is moving from West and rich world has to share their privileges with us. I believe that re-balancing of World Economy in natural course of event is a win-win for everyone.
TE:  Has the crisis arisen because we did not deal with the 2008 crisis well?
I feel that except the liquidity bottlenecks for short duration, India remain insulated from 2008 financial crisis. The 2008 crisis started from the rich world Financial Sector, which was protected by Public Sector through huge debt adversely affecting the country's own repayment capacity by 2011. The volatility and recessionary momentum in Developed countries is creating negativity in the ability of the Emerging Economies to sustain growth momentum, which is affecting one and all. However, Reserve Bank is doing excellent work of managing the Indian Financial Sector to lessen the pains of Global Slowdown.
TE: Did the quick rebound in the financial market led to this complacency with regards to reforms?
The financial market rebound was on high investor and business confidence based on the strength of Indian Economy. The fundamentals of the economy are still good but rising prices of commodities and energy along with inflationary pressures has evoked some concerns about sustainability of growth. RBI through pro- active management is introducing fresh reforms in Indian Financial Market at regular interval. One  among many reforms initiated by RBI includes introduction of Bank Holding Company Structure, Convergence of Indian Accounting Standards with International Financial Reporting Standards, Licensing of New Banks in the Private Sector, Presence of Foreign Banks in India, Financial Inclusion etc.
TE: What could be the impact of this crisis on emerging economies like India?
Banking Sector is concerned about the macroeconomic, price and financial stability of Indian Market being jeopardized by the Global Crisis. With growth stalled in the advanced economies, external demand is slowing and affecting the exports of country. The crisis is permeating to our country through risk aversion and volatility in capital stoking inflationary pressures in the country and complicating macroeconomic management in the face of slowing growth. The area  of concern for banks is increase in credit risks due to deterioration in asset quality and resultant impairment of capital. 
TE:  What are the areas that India needs to act upon to bolster growth?
Any policy and strategy for sustainable growth have to be welfare-oriented placing the well-being of quality of life of the key stakeholders - individuals of households at the centre of strategic thinking. For sustainable growth, we have to improve quality and affordability of education along with inculcation of ethics in our human capital, improve agriculture productivity, storage and distribution network to have self sufficiency in food, remove bottlenecks in infrastructure development and support Financial Sector for all-inclusive intermediation. Further, we need the developed world, the emerging markets along with multilateral institutions to make all- out efforts to do what it takes to pull back the Global Economy from the brink of collapse and set it on the path of recovery.