'Indian banking system remains stable,' says RBI Governor amid US financial turmoil

Amid US banks' crisis, Reserve Bank of India Governor Shaktikanta Das on Friday said Indian banking system remains stable, resilient. At the 17th K P Hormis Commemorative Lecture in Kochi, Das said US banks' crisis shows "need for prudent asset liability management".

Banks must do proper risk assessment before investing in bonds, said Das while referring to Silicon Valley Bank collapse.

India's total external debt is within manageable levels, he said. RBI has been constantly engaging with banks and has nudged them to adopt robust risk management practices, conduct periodic stress tests and build sufficient capital buffers, Das said.

The governor focused most of the speech on India's G20 presidency and in this context, he called for more coordinated attempts by the group of the world's 20 largest economies to help those countries with high external debt risks due to the US dollar rise.

He also said the grouping must provide climate change financing to most affected countries on a war footing. On the US baking crisis where two mid-sized banks (Silicon Valley Bank and First Republic Bank) with over $200 billion in balance sheets each went belly up last week, he said the ongoing crisis drives home the importance of robust regulations that focus on sustainable growth and not excessive build-up either on the asset side or liability side. Das, without naming the US bank, said that on the face of it, one of them had unmanageable deposits in excess of their assets side business.

Bank stocks across the world have tumbled amid fears of a widespread banking crisis in United States and Europe. "Our financial sector is stable. worst of inflation behind us. Our external debt is manageable, so dollar rise does not pose any problem to us," said Das. RBI Governor called for coordinated attempts by G20 countries to help countries with high external debt risks due to dollar rise.

"Ongoing US banking crisis drives home the importance of robust regulators, sustainable growth and clearly shows risks of private cryptocurrencies to the financial system," he said.  

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Excessive deposit or credit growth is bad for the banking system, added Das, adding that risk of a hard landing for the world economy has dissipated.

Meanwhile, SVB Financial Group said on Friday it filed for a court-supervised reorganisation under Chapter 11 bankruptcy protection to seek buyers for its assets, days after its former unit Silicon Valley Bank was taken over by US regulators.

The move to commence bankruptcy proceedings comes as emergency measures to shore up confidence have so far failed to dispel worries about a financial contagion.

Californian regulators shuttered Silicon Valley Bank last Friday, making it the largest collapse since Washington Mutual went bust during the financial crisis of 2008.

The tech lender was forced to sell a portfolio of treasuries and mortgage-backed securities to Goldman Sachs at a $1.8 billion loss after a rise in yields eroded value.

To plug that hole, it attempted to raise $2.25 billion in common equity and preferred convertible stock but spooked clients pulled deposits from the bank that led to $42 billion of outflows in a day.

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