According to Reserve Bank of India governor Shaktikanta Das, a resilient bank must be financially, operationally, and organizationally resilient, with adequate capital buffers to generate earnings even in the face of severe macroeconomic shocks.
Das, who added that the central bank has begun to scrutinize bank business models more closely. “It (a resilient bank) should also have adequate liquidity to meet its obligations in various situations. Therefore, financial resilience is closely linked to a bank’s business model and strategy. The Reserve Bank has, therefore, started looking at the business models of banks more closely,” Das said.
Governor Das was speaking at the College of Supervisors’ conference on ‘Financial Resilience’ in Mumbai. Das stated that, in light of recent banking sector instability in the United States and Europe, there is now a renewed emphasis on issues of financial resilience and stability.
Das went on to say that the Indian banking system has remained resilient and has been unaffected by the recent crisis in advanced economies.
Silicon Valley Bank, one of the most prominent lenders in the world of technology startups, went bankrupt on March 10, following a depositor run. Its closure triggered a chain reaction, with other banks following suit.
“The financial sector in a country and the individual entities therein like banks, non-banking financial companies (NBFCs) and other entities have to be resilient at all times. They should have the inner strength to withstand even the most stressful times.”
“This historical function of providing emergency liquidity assistance to banks and other financial market institutions necessitates that central banks keep a close watch on banks and financial markets for signs of instability, if any,” Das said.