RBI looking at bank business models to spot vulnerabilities: Governor Shaktikanta Das – Times of India

MUMBAI: Mumbai: Reserve Bank of India governor Shaktikanta Das said that the central bank is taking a close look at the business models of banks to see if there is any build-up of risks.
Speaking at the Global Conference on Financial Resilience on Wednesday, Das said that after the banking crisis in the US, questions were being raised whether the vulnerable banks were following the right business model. “Business models can create risks in part of the banks’ balance sheet, which can blow up into a bigger crisis,” said Das.
The governor said that severe stress can emerge from parts of the balance sheet that were considered relatively safer. Das’ reference was to the Silicon Valley Bank in the US, which went bust despite investing in secure instruments because of a mismatch in the duration of deposits and investments.

Das said that in the aftermath of the Covid pandemic, the Ukraine war and the US banking sector crisis, there is renewed focus on financial resilience and stability among regulators worldwide. “RBI has strengthened its supervision and regulation for banks and other entities. Financial resilience is linked to banks business model. RBI is therefore looking at banks’ business model more closely,” he said. During Covid, the RBI went beyond its traditional prudential guidelines requiring banks to meet capital adequacy and liquidity requirements and nudged banks to build capital buffers.
In addition to prudential measures, the RBI periodically lays out macroprudential measures to address the system-wide build-up of risks. As a result Indian banking system has remained resilient and was not affected by sparks from the banking crisis in advanced economies.
“The CRAR (capital-to-risk weighted assets ratio) of banks at 16.1% is much above the minimum statutory requirement. Stress tests show that banks will have enough capital even under severe stress situations,” said Das.
In his speech, the governor also focused on operational and organisational resilience. One of the top risks to operational resilence, identified by G20 regulators, was Cyber risks and risks arising from outsourcing to third parties. Keeping this in mind, on April 10, RBI issued comprehensive guidelines on outsourcing information technology services by banks and regulated entities.
As part of its focus on organisational resilience, the RBI has revamped its supervisory framework. “RBI has taken a keen interest in the audit of regulated entities and has engaged with external statutory auditors,” said Das. From FY23 onwards, the board of directors will decide on selecting individual branches for audit, Das said.