RBI Governor Calls Rupee Depreciation Normal, Asserts Banking System Strength
In his first anniversary as RBI Governor, Sanjay Malhotra has affirmed that India’s banking system remains robust while characterizing the rupee’s recent depreciation as a normal economic phenomenon. During an exclusive interview with Zee Business Managing Editor Anil Singhvi, Malhotra addressed critical monetary policy questions and outlined the central bank’s priorities for maintaining financial stability.
Key Takeaways
- Rupee depreciation of around 3% annually is normal and not concerning
- Banking system shows no systemic risk despite rising personal loans
- Future rate cuts remain possible depending on inflation data
- India’s forex reserves at $700 billion provide strong buffer
- Foreign investment in banks below 7%, well within limits
Reflecting on One Year as RBI Governor
Malhotra described his first year as “demanding but successful” despite global challenges including US tariff actions, the Russia-Ukraine conflict, and West Asia tensions. The RBI reduced the repo rate by 100 basis points while inflation returned to the 2-6% band and GDP growth reached 7.8% in the June quarter.
Interest Rate Outlook
“The direction for rate cuts is positive,” Malhotra stated, emphasizing that actual decisions will depend on incoming data and MPC deliberations. The RBI maintains a balanced approach between controlling inflation and supporting growth.
Rupee Stability and Gold Reserves
The Governor explained that the rupee’s long-term trajectory follows inflation differentials, with mild depreciation being natural. The RBI has added nearly 300 tonnes of gold over eight years, bringing total holdings to approximately 880 tonnes – about 15% of forex reserves.
Banking System Health
Malhotra expressed confidence in the banking sector, noting that asset quality remains satisfactory despite rising personal and unsecured loans. Foreign ownership in Indian banks stands below 7%, well under the 15% limit, with the trend being “positive and not a cause for concern.”
AI Adoption and Economic Safeguards
The RBI is leveraging artificial intelligence for cybersecurity, fraud detection, and credit risk assessment. India’s economic fundamentals remain strong with a current account deficit of only 0.6% last year and world-class digital payments infrastructure.
Vision for $5 Trillion Economy
As India progresses toward becoming a $5 trillion economy, the RBI’s focus will be on maintaining financial stability, ensuring well-capitalized banks and NBFCs, and improving banking services for all 140 crore Indians. “A resilient financial sector is the backbone of long-term growth,” Malhotra emphasized.
The Governor concluded with a message for borrowers: “Those who take loans must repay responsibly,” while reaffirming the RBI’s commitment to data protection and improved service standards across financial institutions.
