MUMBAI: The Reserve Bank of India (RBI) is looking at the business models of banks more closely as it feels that poor strategies can trigger a crisis, said Governor Shaktikanta Das, on Thursday. The Governor said the recent developments in the US, which has seen the implosion of lenders like Silicon Valley Bank and a rush to limit the contagion of stress across the system, maybe because of poor business models.
He added that Indian banks have been able to stay resilient and have not been impacted adversely by the “recent sparks of financial instability seen in some advanced economies” courtesy of the work done in this aspect by RBI and the banks themselves. “The recent developments in the US raise a question whether the business model of individual banks that have faced challenges whether the business models were right,” Das said. “The RBI has started looking at the business models of banks more closely deficiencies (in it) can spark a crisis,” Das said, speaking at the inaugural global conference on financial resilience organised by the College of Supervisors, which RBI started last year.
Business models can sometimes create risks in certain parts of the balance sheet of a bank which going forward can blow up into a bigger crisis, Das said. Recent events in the banking landscape of the US and Europe suggest risks could crop up from segments of its balance sheet that might have been considered relatively safer, Das said, amid several analysts suggesting the implosion of Silicon Valley Bank was triggered by lapses on something as basic as asset-liability mismatches.
He urged the management and bank boards to continually assess the financial risks and focus on building up adequate capital and liquidity buffers even beyond the regulatory minimum for continued resilience and sustainable growth.
Das said financial resilience is linked to a bank’s business model and strategy, and added that among other aspects, RBI has prescribed capital and liquidity buffers, and nudged lenders to strengthen capital buffers in times of plenty of availability like the Covid-19 crisis.