RBI wants banks to have enough capital

Reserve Bank of India Governor Shaktikanta Das has emphasised the importance of banks having adequate capital buffers and liquidity in the face of macroeconomic stress. Speaking in Mumbai, Das said the central bank had encouraged entities to build up capital reserves in good times. He also warned that certain business models could create risks that ultimately led to a wider crisis.

Das’ comments come as the collapse of three mid-sized US banks in March led to turbulence in the US and European banking sectors, sparking fears of a spillover in India. However, the RBI governor said India’s banking system had remained resilient and unaffected by the instability witnessed in some advanced economies.

The gross non-performing asset ratio of Indian banks stood at 4.41% at the end of December 2022, down from 5.8% on 31 March 2022. However, the RBI expects banks to focus on building adequate capital and liquidity buffers, Das said. The regulator’s approach has been to flag any deficiencies to banks’ boards, he added.

The RBI is also carrying out a fresh assessment of the quality and coverage of statutory branch audits of private banks, the governor said, highlighting the need for governance and adequate audits across regulatory entities. He added that the RBI “remains committed to future-proofing the Indian financial system and providing the required support for sustainable growth”.

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