Let me start with some technical jargon and then explain from first principles the part of it I wish to focus on. With the amendment of the Reserve Bank of India Act in 2016, the “primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth”.
Our banking system is becoming more concentrated, with a number of very large entities operating across multiple business lines and national boundaries, each entity with positions and exposures that are both complicated and difficult for third parties to understand. These entities have outgrown the current regulatory capital regime, which is still adequate for most banks.