Reserve Bank of India (RBI) Governor Shaktikanta Das said the central bank is closely monitoring the “business model” of domestic lenders as bad strategies can lead to a bigger crisis. Describing the bad business model as one of the reasons for the recent developments in the US, Das said that India’s banking system remains strong and has not been adversely affected by global developments.
His statement came a few weeks after the sinking of the Silicon Valley Bank. Due to this development, a situation of crisis has arisen in the financial sector of America and Europe. Das said the recent developments in the US have raised questions whether the business model of individual banks was correct.
Addressing a global conference on financial sector soundness by the Reserve Bank-promoted ‘College of Supervisors’, Das said, “India’s financial system remains robust and has not been adversely affected by financial instability in some advanced economies.” ‘
He said, “The Reserve Bank has now started keeping a close watch on the business model of banks. Any flaw in these can cause a crisis.
Das said that the business model can at times expose parts of the bank’s balance sheet to risk, which can later turn into a bigger crisis. Das said, “The Reserve Bank’s stress tests show that even in extreme crisis situations, Indian banks will be able to keep the capital adequacy ratio above the minimum requirement.”
He asked the management and board of directors of banks to regularly assess financial risk and focus on creating adequate capital and liquidity ‘buffer’. He said that this should be more than the minimum regulatory requirement for continued strength and sustainable growth of banks.
While alerting the stakeholders, the governor said that policies are being adopted across the world apart from tradition. In such a situation, some kind of ‘surprise’ can be seen from anywhere in the financial sector. He said the Reserve Bank is committed to strengthening the Indian financial system for the future and supporting its sustainable growth.
The governor said that Indian banks have registered improvement in recent times on the front of pressure and capital buffer. The gross non-performing assets ratio of banks has come down to 4.41 per cent in December 2022 from 5.8 per cent in March 2022 and 7.3 per cent as on March 31, 2021.
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