SVB crisis. US Bank collapse: RBI Governor emphasises on prudent asset liability management

The recent developments in the US banking system drive home the importance of ensuring prudent asset liability management, robust risk management and sustainable growth in liabilities and assets in the banking sector, among others, according to Reserve Bank of India Governor Shaktikanta Das.

In this regard, he also emphasised on the need for undertaking periodic stress tests; and building up capital buffers for any unanticipated future stress.

The Governor’s observations came in the context of the recent collapse of two US banks — Silicon Valley Bank and Signature Bank.

These US banks faced asset-liability mismatches, with deposits growing faster than credit during the Covid period, resulting in deployment of surplus liquidity in Government and private sector bonds. The steep rise in interest rates in US since the beginning of 2022 resulted in huge losses in the bond portfolios.

Das cautioned that these developments also bring out that cryptocurrencies/assets or the like, can be a real danger to banks, whether directly or indirectly.

Indian banks resilient

Addressing the 17th KP Hormis Commemorative Lecture, organised by Federal Bank in Kochi, the Governor noted that the 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 significant impact on preserving financial stability of every country.

“The Reserve Bank has taken necessary steps in all these areas. The regulation and supervision of the financial sector and the regulated entities have been suitably strengthened.

“...What we have in India today is a well regulated and well supervised banking sector. The same would apply to the NBFCs sector and other financial entities under RBI’s domain,” Das said.

The Governor observed that despite the overwhelming concerns a few months back about an imminent recession, the global economy has, in fact, exhibited greater resilience, reducing the probability of a hard landing. Nonetheless, there is a trend decline in global growth.

Das underscored that despite the multiple and overlapping shocks to the global economy from Covid-19 pandemic, the war in Ukraine and synchronised monetary policy tightening by Central Banks across the world, the Indian economy remains resilient and is expected to be the fastest growing major economy in the world.

“Our financial sector remains stable; the worst of inflation is behind us; and the Indian Rupee has exhibited least volatility among its peer currencies,” he said.