The Reserve Bank expects the managements and the boards of directors of banks to assess their financial risks and secure capital resources surpassing the minimum regulatory benchmark on a constant basis.

“We expect the management and the board of directors of each bank to continually assess financial risks and focus on building up adequate capital and liquidity buffers even beyond the minimum regulatory requirements,” Reserve Bank of India (RBI) Governor Shaktikanta Das said on April 27.

The Indian banking system remain resilient and not been affected by the recent sparks of financial instability seen in some advance economies. This also comes out in our recent stress test result, he said.

This is required for continued resilience and sustainable growth of individual banks and financial entities. Das was addressing at the Global Conference on Financial Resilience.

Das further said resilient future ready bank needs to be financially, operationally and organisationally resilient. To be financially resilient, banks should have adequate capital buffers and be ready to generate earning even in times of severe macroeconomics shocks.

It should also have adequate liquidity to meets its obligations in various situations. Therefore, financial reliance is closely linked to bank’s business model and strategy. The RBI therefore started looking at the business models of banks more closely,” he said.

Further he added aspects or deficiencies in the business model itself can spark a crisis in due course. We have not only prescribed regulatory norms capital adequacy and liquidity ratio, but gone beyond to nudge the banks to build up capital buffers in good times and times of plenty.

We did this during the COVID-19 pandemic when there was plenty of liquidity, the interest rates were low and the full impact of the pandemic on the financial sector was still highly uncertain, he said.