Why RBI thinks India's financial system is strong

A day after global credit rating agency S&P cut India's outlook to 'negative', RBI said on Thursday the country's financial system is strong and sometimes these ratings are discounted by markets.

It also said that the Reserve Bank will intervene in the forex market only if there is high volatility in the currency market, not just because of the ratings.

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RBI Deputy Governor K C Chakrabarty said the central bank will come out in June with its next financial stability report, which showcases the country's financial strength, and it will reflect the position of the economy.

"Indian financial system is strong. That is what our internal assessment.

"That our financial stability report always gives. Again, RBI's financial stability report will

come in June. Then you can see what the position is," Chakrabarty told reporters on the sidelines of an event in Hyderabad.

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"Sometimes rating discounts. That means what is coming in the rating is discounted by market," he added, while replying to a query on the impact of S&P report.

Standard & Poor's on Wednesday downgraded India's credit outlook to 'negative' and warned of a downgrade if there is no improvement in the fiscal situation and political climate.

Unfazed, Finance Minister Pranab Mukhejree had said the government was not feeling panicky but it was concerned and will take note of the 'timely warning'.

Chakrabarty said RBI is examining the situation and cannot comment further on the subject.

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"Now without examination and diagnosis I cannot comment. Let me complete the testing and diagnosis.

"After that let me understand what is happening," he said.

Replying to query on RBI's intervention in forex markets, he said, "Our currency intervention depends on volatility in the market.

"Not based on the ratings. Because of the rating if there is a volatility, if there is need to intervene, then RBI will intervene."