Shaktikanta Das said that RBI is now looking more closely at the business model of banks. (file)
Mumbai:
Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said that banks should have adequate capital buffers and liquidity and be prepared to report earnings even under macroeconomic stress.
“Our approach has been to enhance the resilience as well as the robustness of the financial sector so that individual entities can effectively respond to stressful situations and contribute to the country’s economic growth,” Das said at an event in Mumbai.
Mr Das said that as the banking regulator, the RBI has taken the lead in this regard, forcing institutions to build up adequate capital buffers over a period of time.
Mr Das said the central bank is now looking more closely at the business model of banks. He added that business models can sometimes create risks in certain parts of their balance sheet which can eventually turn into a bigger crisis.
Mr Das’s comments come as the collapse of three medium-sized US banks in March caused unrest in the US and European banking sectors, raising fears of spillovers to India.
Mr Das said the banking system has remained resilient and unaffected by the sparks of volatility witnessed by some advanced economies.
He said the gross non-performing asset (NPA) ratio of banks at the end of December 2022 was 4.41% as against 5.8% as on March 31, 2022.
However, the RBI expects the management of banks and regulated entities to continuously assess financial risks and focus on building adequate capital and liquidity buffers, Mr Das said. He said the approach of the regulator has been to get the boards of the banks to plug any loopholes.
RBI is also undertaking a fresh assessment of the quality and coverage of statutory branch audits of private banks, the governor said, stressing the need for governance and adequate audits in regulatory bodies.
Mr Das said the RBI is “committed to future-proofing the Indian financial system and providing the necessary support for sustainable growth”.