Banking Central | Das’ message to banks: In good times, we prepare for the bad
The Reserve Bank of India (RBI) Governor Shaktikanta Das has sent a clear signal to the banking sector that it needs to beef up the capital and the central bank has begun looking at the business models of banks more closely. The idea, the governor said at an event on April 27, was to identify deficiencies in the business model that can trigger a crisis.
Why this caution and why now? This isn’t the first time Das has asked banks to build a capital buffer. Last time, it was during the peak of the coronavirus pandemic.
One of the reasons for the latest reminder could be the still evolving banking crisis. The RBI seems to have taken the cue from the US and European episodes where the failure of risk assessment by banks as well as regulators set off a full-blown banking crisis, leading to the closure of some banks and also a flight of deposits from small to bigger lenders.