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Looking closely at banks business models

April 28, 2023

Looking closely at banks business models
The Reserve Bank of India (RBI) is looking closely at banks’ business models to flag any deficiencies that could impact financial resilience, Governor Shaktikanta Das said on Thursday, but added that domestic lenders can maintain minimum capital even under severe stress conditions.

He said the regulator expects the bank boards to focus on building adequate capital and liquidity buffers beyond the regulatory prescription for sustainable growth.
 
Das said scheduled commercial banks’ gross non-performing assets (NPA) ratio a measure of the health of banks declined further to 4.41 per cent by the end of December 2022, from 5.8 per cent in March 31, 2022 and 7.3 per cent in March 31, 2021. Banks’ gross NPA ratio is at its lowest since March 2014, when it was 4.1 per cent. The capital adequacy ratio, at 16.1 per cent at the end of December 2022, was also much above the minimum regulatory requirement.
 
“Financial resilience is closely linked to a bank’s business model and strategy. The Reserve Bank has, therefore, started looking at the business models of banks more closely. Aspects or deficiencies in the business model itself can spark a crisis in due course,” Das said at the Global Conference on Financial Resilience organised by the College of Supervisors.
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