High and heterogeneous levels of NPLs are one key impediment to taking further steps towards a common deposit insurance scheme. Another stumbling block is related to sovereign exposures on banks’ balance sheets. Due to regulatory privileges, sovereign exposures are not – or only thinly – backed by regulatory capital.
As a number of multilateral agencies and academics have recognized, the ability to shape capital inflows is now a recognized part of the macro-prudential tool kit. But by taking away control over internal capital inflows from the RBI, isn’t the FSLRC taking away an important tool from the RBI?