His comment comes amid growing concerns over possible contagion impact of frenzied bank runs on several regional banks in the US following the collapse of Silicon Valley Bank and a wobbly Credit Suisse that got a lifeline from Swiss National Bank.
“We are now doing a much deeper dive into the business models of the banks, which may not be sometimes to the liking of the banks. They may be feeling that we are interfering in their commercial operation. We are not,” Das said at a Federal Bank event in Kochi.
“If a risk is building up, we sensitise the bank. The bank’s risk management committee is supposed to focus on that. We don’t tell banks what they have to do. Banks know better what needs to be done in the interest of their stability,” he said.
While India has a “well-regulated and well-supervised” banking sector, which has been achieved over a period of time with prudential policy measures, RBI does such intervention as a second layer of guard, the governor said. This is over and above the central bank’s periodic stress-testing exercise on the local banking system.
The recent US banking crisis, which saw the collapse of Silicon Valley Bank and Signature Bank, has yet again underlined the importance of banking regulation and supervision, Das said.
“These developments in the US drive home the importance of ensuring prudent asset liability management, robust risk management and sustainable growth in liabilities and assets, undertaking periodic stress tests, and building up capital buffers for any unanticipated future stress,” he said.The cryptocurrencies and assets can also be a real danger to banks, whether directly or indirectly, Das warned while delivering the 17th KP Hormis Commemorative Lecture organised by Federal Bank in the memory of its founder.
RBI’s supervisory system has been overhauled in recent years through a unified and harmonised approach for commercial banks, non-banking finance companies, and urban cooperative banks.
“The focus is now more on identifying the root cause of vulnerabilities, rather than dealing with the symptoms alone,” Das said.
In his speech titled ‘G20 for a better global economic order during India’s presidency’, the RBI governor also talked about India’s leadership role in the new economic order and the need for rebuilding trust through cooperation for addressing critical and emerging global challenges.
On the outlook of the global economy, he expressed optimism on greater resilience even as there is a decline in global growth. “The risk of a hard landing has dissipated world over, even as the pace of disinflation remains less than desirable,” he said.
Das also pointed out the uncertainties over structural shifts in the drivers of inflation ranging from labour market dynamics to concentration of market power, and less efficient supply chains.
“Before the cascading effects of geoeconomic fragmentation further dampen the global outlook, rebuilding trust through cooperation and recommitting to multilateral frameworks for addressing critical global challenges has become essential,” he said.
Leave a Comment
You must be <a href="https://b2bchief.com/wp-login.php?redirect_to=https%3A%2F%2Fb2bchief.com%2Fshaktikanta-das-rbi-scrutinising-banks-business-models-to-gauge-risk-build-up-governor-shaktikanta-das%2F">logged in</a> to post a comment.