Crypto Assets If Allowed To Grow Will Lead To Next Financial Crisis: RBI Governor

Crypto assets are nothing but rampant speculation and should be prohibited, according to Shaktikanta Das.

"Our view is that it should be prohibited, because if it is allowed to grow... please mark my words, the next financial crisis will come from private cryptocurrencies," the Reserve Bank of India governor said while speaking at the Business Standard BFSI Summit on Wednesday.

The governor pretty much reiterated the central bank's long-held stance that crypto assets have no underlying value and serve no public utility.

Speaking about India's central bank digital currency, or CBDC—called e-rupee and currently in the pilot stage—Das said the CBDC functions as money itself, while UPI is simply a payment platform. The CBDC will also have an 'auto sweep-in' and 'auto sweep-out' functions, allowing users to move money in and out of their CBDC wallets, he said.

GDP Growth and Inflation

While the world bank has projected India's GDP growth at 6.9% for FY2023, the RBI's projection is 6.8%.

The RBI's 10-basis-point lower projection is largely driven by global headwinds, Das said. "The fact of slowing growth is quite visible in large parts of the world. They will definitely affect the external demand," he said.

Even though the RBI's inflation estimates have missed the mark now and then, the divergence has largely been driven by the emergence of sudden factors, the governor said. The RBI and the government have made a coordinated effort to contain inflation as well, he said.

Banking System

The gap between credit growth and deposit growth at banks has been on the radar for a while, but Das does not see it as a cause for alarm.

"I do agree that deposits have to grow. They must grow to sustain credit growth," he said. But there's a base effect in play as well. Just as credit growth looks faster due to the low base of the previous year, deposit growth looks slow due to the higher base, he said.

The weighted average lending rate on fresh loans has risen 117 basis points, Das said.

IBC For Non-Banks

"We shouldn't look at IBC as a way to get back loans," Das said in response to a question about the IBC process not being good enough at getting back assets.

The main challenge for the IBC, according to Das, has been the delay in the completion of processes. Loan recovery is important, but when compared to previous frameworks, IBC recoveries have been far superior, he said.

"What is important is to make a timely reference, a timely invocation of the IBC," Das said. It is critical to identify stress early on and invoke the IBC in order to improve recovery times, he said.