The reasons why the housing market is of particular interest to the Reserve Bank , and...

The reasons why the housing market is of particular interest to the Reserve Bank , and the steps the Bank can take to mitigate risks that might arise from the housing market. Make sure you discuss the macroprudential policy measures that the Bank has put in place to address concerns arising from the housing market

Expert Solution

Macroprudential policy focuses on the financial stability of economy. This policy focused on decision making. Macroprudential policy tools used to build up cyclical fluctuations in credit supply, interdependence across the institutions and sectors and cross boarder spill over. The policy implemented through continuous monitoring on aggregate credit growth, growth in commercial real estate, loan to deposit ratio, credit to GDP gap, growth of NPA, interest coverage ratio etc. RBI used risk weight and provisioning requirements to protect balance sheet of banks. The risk weightening provisioning includes residential housing, commercial real estate, capital market and measures to non banking financial institutions.
Measures of macro prudential policy:
Intensive supervision of financial conglomerates: This identifies the issues relating to financial stability, financial sector development, inter regulatory coordination etc.
Regulating domestically systematically important banks: there is a huge demand for housing market in domestic areas. Finding and regulating these kinds of banks increase the back up of banks. Limits on interbank liabilities: The uncontrolled liability having a dominant feature. This make increasing rate of risks among the banks.

Rahul Sunny answered 8 months ago

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