Now, it goes without saying that a sound regulatory framework for the regulated entities, whether banks, NBFCs, or other financial entities, together with a robust supervisory and monitoring mechanism, are key enablers for ensuring financial stability from a prudent perspective. So far as the Reserve Bank is concerned, measures like the revised norms on classification and valuation of investments, the scale-based regulations, and multiple other initiatives which were taken—I'm not reading them out; the copy of my speech will be uploaded on the RBI website, you can have a look at it—so all these steps, including the steps to contain potential credit exuberance in unsecured loans, are some of the illustrations of prudent design of regulations in the interest of maintaining financial stability.
Looking ahead, the financial system will continue to face newer challenges. There is a continuing need for the financial sector entities to strengthen their levels and quality of capital while further sharpening the risk management standards. The Reserve Bank is now working on issues like the adoption of the revised Basel III standards in a phased manner, issuance of guidelines for expected credit loss, liquidity coverage ratio, that is the LCR, and a prudent framework for financing of project loans. Our overall approach is consultative. For instance, with regard to the ECL framework, that is the expected credit loss framework, even after issuing a discussion paper and receiving stakeholder comments, which we got examined by an external working group, we now propose to issue a draft circular for implementation of ECL. So the draft will be followed by issuance of a final circular; again, we will get comments. And we are adopting this very careful approach because the introduction of the ECL framework marks a major transformation in the way the stressed assets or the buildup of stress or the way the assets get classified. So considering their significance, we have decided to adopt a consultative approach. The idea is to get stakeholder comments on certain specifics of the framework considering its significance for the banking sector.
Our endeavor is to maintain a balance between banking sector stability and economic growth. I would like to stress this point again: our endeavor is to maintain a balance between banking sector stability and economic growth, both of which are necessary and are complementary to each other. We are also working on climate risks and their impact on the financial sector. The final guidelines for disclosure framework on climate-related financial risks will be issued shortly.
The process of supervision of banks, NBFCs, and other financial entities has also been unified and substantially strengthened with proactive on-site and off-site supervisory mechanisms. The focus is now on early detection and preemptive correction. The enhanced off-site assessment framework is more analytical and forward-looking with introduction of macro stress tests, early warning indicators, fraud vulnerability index, micro data analytics, and use of artificial intelligence and machine learning. The on-site supervision now goes into greater depths. Direct engagement with supervised entities is enabled through discussions and also through the DU portal which we have set up, which is a SupTech initiative with end-to-end workflow solution to streamline and strengthen various supervisory processes. The College for Supervisors, which was set up in May 2020, is now helping our supervisors to sharpen their skills and remain up to date with the new and complex developments in the financial sector.
The financial sector indeed has become more complex with the development of multiple digital products, common market infrastructure, and common service providers for IT services. These developments have elevated both the microprudential and macroprudential risks. The Reserve Bank has been proactive in addressing the growing cyber security challenges in the financial sector by issuing regulations relating to basic cyber hygiene in the regulated entities and also with regard to digital payment security controls, IT outsourcing, and IT governance. Recognizing the critical importance of data and its future potential, an enterprise computing and data center is being set up in Baneswar, alongside a cyber security training center. Further work on setting up of the Reserve Bank cloud facility is also gathering pace.
Overall, the financial sector in India is now more robust and resilient than at the beginning of the recent period of turmoil. There is, however, no room for complacency. The regulator and the regulated entities—many of you are present here—the regulator and the regulated entities must remain alert and future-ready for the emerging challenges. I would now like to speak briefly on the external sector stability.
India's external sector has also exhibited strength and stability in the recent period. The current account deficit has remained within manageable limits and stood at 1.1% of GDP in Q1 2024-25. During the first half of 2024-25, India's merchandise exports recovered from a contractionary zone in 2023-24. Services exports have remained buoyant and rose by 11% during the first half of the current financial year. The robust growth in the services exports, coupled with buoyant private remittances, are helping to contain the current account deficit. On the financing side, net capital inflows have generally exceeded the current account deficit and contributed to the accretion of foreign exchange reserves. India has the fourth largest foreign exchange reserves in the world at 682 billion US dollars as on 31st October, which is sufficient to cover the entire external debt and about 12 months of merchandise imports. In terms of other key external sector indicators such as external debt to GDP, net international investment position, and short-term debt to external debt, India's position remains resilient.
Our exchange rate policy is well articulated and has remained consistent over the years. India's exchange rate regime is market-determined and the Reserve Bank does not target a level or band of the exchange rate. The forex interventions are carried out to ensure an orderly movement of the exchange rate and to curb undue volatility, anchor market expectations, and ensure overall financial stability. It is important to note that the exchange rate is also a barometer of an economy's inherent strength. If the Indian rupee has remained relatively stable despite severe external shocks, including the largest and the steepest tightening by the US Fed in 2022 and 2023, it speaks volumes about the sea change in our macro fundamentals from the days of the taper tantrum.
In fact, if we look at the other major segments of the financial markets regulated by the Reserve Bank, that is the money market and government securities market, they have also remained stable despite large swings and spillovers from global markets. The weighted average call money rate has remained range-bound within the liquidity adjustment facility corridor and closely aligned to the policy repo rate. The 10-year G-sec yield has also moved in a narrow range of 6.72 to 7.61% during the tightening cycle amidst global policy pivot, fluctuations in US Treasury yields, and global crude oil prices. The Reserve Bank has undertaken several regulatory measures in recent years to ensure resilience and stability of the financial markets. These include putting in place regulatory frameworks for benchmark administrators and electronic trading platforms, robust governance requirements for market makers in OTC derivative markets, and margin requirements for non-centrally cleared derivative reforms.
As I proceed to conclude, let me add that the Reserve Bank has also played a crucial role in creating an enabling ecosystem for innovations in the payment systems. This has enhanced the efficiency and stability of the Indian financial system. Introduction of 24x7 NEFT and 24x7 RTGS, the success of the UPI, and implementation of the Central Bank Digital Currency, that is the CBDC pilot project, are transforming the wider financial system. Digitalization of banking services has received a further boost from the Reserve Bank's pilot project, namely the Unified Lending Interface. This Unified Lending Interface was designed and developed by the Reserve Bank Innovation Hub in Bengaluru. A few other initiatives of this Innovation Hub are also in the pipeline.
Let me now try and conclude. The Reserve Bank's mandate spans multiple dimensions. Our consistent effort is to take a holistic view of stability, which encompasses price stability, financial stability, and sustained growth. We deploy multiple policy instruments to serve these multiple objectives. Today, India's economic growth remains resilient, inflation is expected to moderate despite periodic humps, and the external sector is robust. Without being complacent, let me end by saying that the Indian economy has sailed very well through the prolonged period of turbulence and it exhibits resilience in the face of constantly emerging new challenges. Thank you. Namaskar.
