Fifth, while there is considerable merit in maintaining a broad distinction between monetary and prudential policies of the central bank, the RBI did not hesitate, as a complement to monetary tightening, to enhance the provisioning requirements and risk weights for select categories of banking assets, namely real estate, housing and capital market exposures.
These measures were needed to specifically address the issues of rapidly escalating asset prices and the possible impact on banks’ balance sheets in a bank dominated financial sector. This combination, and more important, readiness of the RBI to use all instruments, has a credible impact, without undue restraint on growth impulses.