RBI was courageous to act on time during '08 crisis: Thorat

MUMBAI: Outgoing RBI Deputy Governor Usha Throat today said the Reserve Bank was "courageous" and "timely intervention" insulated India from the recent global financial contagion - something which has earned the central bank awe and global admiration.

"The RBI was courageous enough to act on time. All global central banks and the regulators were worrying about this (problems like high liquidity plaguing the financial systems), but very few acted," she told PTI in an exclusive interaction on her last day at work here today.

The difference between our country and the rest of the world and also our central bank and that of others, Thorat said, is that "in India, we acted, and that too on time."

Thorat, who said taking tough decisions in difficult times gave her a "high" in her 38-year-long association with the Mint Road, added, "there were also many people saying that prudential regulations are always pro-cyclical and you had to be counter-cyclical in times of crisis."

"We did a number of things to cushion and buttress our banking and financial system from the event of a build up of asset price bubble and the subsequent downfall. Both up and down the way, we acted looking at the system," she reminisced of the days leading to and after September 2008.

Listing out the steps taken by RBI like intervening in the inter-bank market, limiting exposures and increasing the provisioning, Thorat said the apex bank took both "monetary and prudential measures well in time" to prevent building up of bubbles, which proved to be a preventive step.

Most of the world went into a financial slowdown after investment banking giant Lehman Brothers and insurance behemoth AIG filed for bankruptcy in the last quarter of 2008, bringing the whole global financial markets and systems into a grinding halt.

While majority blamed the reckless, getting-rich-quick practices followed by the institutions like trading in bloated securities and derivatives, and US regulators' inability to check the malaise for the bloodbath in markets.

All along, Thorat said, the RBI knew India would come out sooner from the crisis because of the strong fundamentals of the country's macro-economy and the financial system.

Even after the crisis, the RBI took actions which would be criticised, for what Thorat described as "regulatory forbearance", like loosening of the rates as it was well aware that banks would shy away from lending in a downturn as it becomes risk averse.