Viral Acharya says, capital markets play crucial role in economy; RBI putting efforts to expand investor base

Outgoing RBI Deputy Governor, Viral V Acharya on Saturday said that the capital markets play a crucial role in the development of country's economy and the Reserve Bank has been putting in the necessary efforts to expand the investor base. According to a PTI report, Acharya said that capital markets help in attaining sustainable development of economy by providing financial resources for the long-term and are therefore considered as an essential element in the macro-financial policy toolkit. 

Acharya was giving a speech on Development of Viable Capital Markets - The Indian Experience' at Indian School of Business, Hyderabad. "There has been a conscious and continuous effort by the Reserve Bank to expand the investor base and thereby liquidity of the markets it regulates, while preserving financial stability. The investor base of India's G-Secs (government securities) has expanded over the past decade in the form of increase in the share of holdings by insurance companies and corporate, while there has been a corresponding decrease in share of holding by commercial banks. In parallel, calibrated access for global investors through the FPI route is helping broaden the investor base, while also bringing in diversity of trading views and strategies,'' Acharya said. 

The US-based economics professor, who resigned as RBI Deputy Governor earlier this month - six months before the scheduled end of his term in office - said capital markets are also vital to reach the objectives such as financial stability and the transmission of monetary policy.

1. The Committee on Global Financial System (CGFS) had constituted a working group in 2018-19 to examine global trends in capital market development. It was also tasked to identify various factors, including legal, institutional, structural and conjunctural, that foster development of robust capital markets and consider the role of policy. 

2. The working group, co-chaired by the People's Bank of China (PBOC, Li Bo) and the Reserve Bank of India (RBI, Viral V Acharya), emphasises on the problems related to the development of bond and equity security markets. 

3. Acharya also said that the CGFS report has identified two types of drivers of capital market development. The first driver enables environment for financial development, while the other ones like an easy access to high-quality material information, diversity in investor base, and efficient market ecosystem for trading play a part in capital market development. 

4. Acharya further added that promotion of capital market autonomy via factors like rationalising regulatory guidelines and procedures, development of financial market institutions and infrastructure, and macro-prudential management of investment restrictions for domestic and foreign investors play a cruicial role in the development of economy.