When asked about the lessons learned from the global banking crisis, Khara is of the opinion that the Indian financial system has already incorporated much better practices. 
Special 
When asked about the lessons learned from the global banking crisis, Khara is of the opinion that the Indian financial system has already incorporated much better practices. Amidst the global banking crisis, the chairman of the State Bank of India (SBI), the country's largest bank, has claimed that the Indian financial system is robust and well-regulated.
"There's no need to worry!" said Dinesh Khara, adding, "I really don't think there is any financial stability issue here in India. We have no need to be concerned."
Khara's comments have come in the wake of the banking crisis unleashed by the collapse of the US-based Silicon Valley Bank, which started with losses in the latter's investment book. Globally, the banks have a higher share of the investment book, both in the corporate sector bond market as well as government securities. Whereas in India, the banks have a higher share of the credit portfolio, which gives them higher interest and non-interest income. The mark-to-market (MTM) losses, if any, often gets absorbed in the higher interest and non-interest income.
When Business Today asked Khara about the likely MTM losses in the Indian banking system, he said that such losses aren't much. "[Losses aren't] much. Whatever MTM [losses] could have been there, we have already seen," he added.
This is despite the interest rate hike by the Reserve Bank of India (RBI). RBI has hiked the benchmark repo rates -- the rate at which the central bank lends credit to other banks -- by 250 basis points since May last year, compared to a whopping 450 basis points hike by RBI's US counterpart, the Federal Reserve. At most, a 25-basis points hike is expected in the April monetary policy.
"Our investment portfolio is more in the held-to-maturity (HTM) bucket, and only a very limited amount of available for sale (AFS) is permitted. There is enough oversight from RBI in terms of what can be moved from HTM to available for sale (AFS). And it's only allowed once a year," Khara noted.
There are RBI guidelines for MTM. As per the RBI rule, investments classified under the HTM bucket need not be marked to market. The securities in the AFS bucket will be marked to the market generally at quarterly intervals. The securities in the 'held for trading' (HFT) category is marked to market at monthly intervals.
"These types of rules, which are ensured by the regulator, have instilled adequate discipline in the system," said Khara.
When asked about the lessons learned from the global banking crisis, Khara is of the opinion that the Indian financial system has already incorporated much better practices.
In fact, the RBI came out with a countercyclical macroprudential measure way back in 2018, which was all about creating an investment fluctuation reserve (IFR). Under IFR, the banks are required to transfer the gains realised on the sale of investments during an easing interest rate cycle. This kind of provision acts as a shock absorber in the monetary tightening phase that the market is now witnessing.
Khara also stressed the point of emergency liquidity support that the central banks around the world provide to help the banking system. Swiss-headquartered Credit Suisse is borrowing $54 billion from the Swiss National Bank to tide over its crisis. The US Fed has also opened emergency credit lines for banks in the US post the SVB collapse.
"If you look at the time when COVID got underway, the concept of an additional liquidity facility was brought in [to support the banks] by the RBI. It was a vehicle for ensuring liquidity against those securities or collateral. So long as there is no credit risk in the security, it's only the interest rate risk, and such a kind of interest rate risk can very well be hedged with the help of an additional liquidity facility," opined Khara.
"The US Fed has also announced additional funding on Monday, which is something similar to that. It's a window for offering liquidity against certain securities. So, essentially, it was an issue relating to liquidity that led to what happened to Silicon Valley Bank," the veteran banker explained.
"And I think on the face of it, there are somewhat risk-related issues, especially concentration risk, both on the liability side as well as on the asset side. And similarly, the liquidity of the investment So I don't think so that it's a matter of challenge for us [India]," he added.
Also WATCH | AI-generated pics of George Washington, Donald Trump, and other US Presidents as wrestlers go viral
Also WATCH | 'Credit Suisse to collapse next,' says investor who predicted Lehman collapse
Copyright©2025 Living Media India Limited. For reprint rights: Syndications Today
