SVB’s lesson is on prudence, but Indian banks stable: Das

Mumbai: RBI governor Shaktikanta Das has said that events around the Silicon Valley Bank (SVB) failure in the US highlight the need for banks to be prudent in their asset-liability management and grow their deposits in a sustainable manner. He also said that the incident brings out the dangers that cryptocurrencies pose to banks.

“Recent developments in the US banking system have brought to the fore the criticality of banking sector regulation and supervision. These are areas which have a significant impact on preserving the financial stability of every country,” Das said in a speech on Friday. Without specifically naming SVB, Das said that developments in the US drive home the importance of ensuring prudent asset liability management, robust risk management and sustainable growth in liabilities & assets, undertaking periodic stress tests, and building up capital buffers for any unanticipated future stress.

Das was optimistic about the world economy. “The risk of a hard landing has dissipated world over, even as the pace of disinflation remains less than desirable,” he said. He was delivering the K P Hormis commemorative lecture at Federal Bank’s headquarters in Kochi.

Das said that the Indian financial system was stable as it was backed by a well-regulated and -supervised banking sector, along with a well-regulated NBFC sector and other financial entities that are under the central bank’s domain.

“We are now doing a much deeper dive into the business models of banks, which may not be to the liking of the banks. They may feel that we are interfering in their commercial operations. We are not. We sensitise them that we have analysed... we find that this problem is developing in your bank. Has this problem been considered by you? If not, let the bank board take a decision.”

The RBI governor also said that, although there was ongoing volatility in exchange rates, especially due to the excessive appreciation of the dollar and its impact on the external debt-servicing ability of nations, India’s external debt was within manageable limits. “We have nothing to fear as our external debt is manageable and thus appreciation of the greenback does not pose any problem to us,” he said.

Das said that the group of world’s largest 20 economies (G20) should enhance their coordination to help those countries that face challenges relating to high external debt due to the recent strengthening of the dollar. He also stressed on the immediate need for the G20 to provide climate change financing to the most affected countries.

The central banker spoke about how G20, through Global Partnership for Financial Inclusion (GPFI), is facilitating dialogues on financial inclusion across the world, with micro, small and medium enterprises (MSMEs) being the main focus group.

“India is sharing its experience in financial inclusion as well as in the use of digital public infrastructure for achieving the goals of poverty alleviation and economic empowerment of vulnerable sections of society. India has been one of the forerunners in addressing the issue of ‘last-mile connectivity’ by leveraging its world-class digital public infrastructure, which includes the JAM (Jan-Dhan, Aadhaar, Mobile) trinity, the UPI, the Open Network for Digital Commerce (ONDC) and the account aggregator (AA) framework. We are also highlighting the importance of digital identity, digital payments and digital consent-based sharing of data in enabling a globally integrated financial inclusion ecosystem.”

Das said that India’s rich and successful experience in the area of digital public infrastructure for financial inclusion could lead the way to improve the lives of the common man globally.