Indian banks ought to have ample capital buffers and liquidity and be able to report earnings even below macroeconomic stress, the nation’s central financial institution chief mentioned on Thursday.

“Our approach has been to enhance the resilience as well as the robustness of the financial sector so that individual entities effectively withstand stressful situations and continue to contribute to the economic development of the country,” Reserve Bank of India Governor Shaktikanta Das mentioned at an occasion in Mumbai.

As the banking regulator, the RBI has gone past on this regard, nudging entities to construct ample capital buffers in instances of loads, Das mentioned.

The central financial institution is now wanting on the enterprise fashions of banks extra intently, Das mentioned. He mentioned enterprise fashions can generally create dangers in sure elements of their stability sheets which might ultimately blow out into an even bigger disaster.

Das’ feedback come because the collapse of three mid-sized U.S. banks in March led to turbulence within the U.S. and European banking sectors, igniting fears of a spillover in India.

India’s banking system has remained resilient and unaffected by sparks of instability witnessed by some superior economies, Das mentioned.

The gross non-performing asset (NPA) ratio of banks in India was 4.41% on the finish of December 2022, down from 5.8% on March 31, 2022, he added.

However, the RBI expects the administration of banks and controlled entities to constantly assess monetary dangers, and give attention to constructing ample capital and liquidity buffers, Das mentioned. The regulator’s method has been to flag any deficiency to banks’ boards, he added.

The RBI can be doing a recent evaluation of the standard and protection of statutory department audits of personal banks, the governor mentioned, stressing the necessity for governance and ample audits throughout regulatory entities.

The RBI “remains committed to future-proofing the Indian financial system and providing the required support for sustainable growth”, Das added. (Reporting Siddhi Nayak in Mumbai, writing by Shilpa Jamkhandikar; Editing by Jacqueline Wong and Sohini Goswami)