The recent global banking turmoil in USA and Europe has jolted the international banking system and brought lessons to test their robustness and stability. The crisis has also brought major concerns for non-banking sectors as these are largely funded by these banks and the associated liquidity shock can bring major collapse to the financed projects.
The scenario has drawn focus toward prudent asset liability management with sustainable growth and robust risk management across the global banking system. The emphasis has been drawn to periodic financial stress tests of the banks to prepare themselves for unanticipated future stress.
The crisis has resulted in the review of the performance of Indian Public Sector Banks to understand their preparation with short as well as long-term perspectives in the wake of the leading failure of Silicon Valley Bank and many others. The strict adherence to the regulatory framework issued by the Reserve Bank of India (RBI) along with adopting the focused approach on risk management through diversification of assets and deposits to ensure wise liquidity management is the need for Indian PSBs.
The ministerial review has found the financial parameters of Indian PSBs stable and resilient. But still, a close vigilance to interest rate risks while testing their stress levels and non-performing assets regularly is important to support rising credit needs in the fast-developing phase of the Indian economy.
The Covid 19 pandemic has also brought major shocks to the international banking systems and raised concerns regarding the economic slowdown and the growing international debt scenario. But, coordinated efforts with a focus on increasing credit outreach and enhancing business presence by PSBs in the sunrise sectors of the Indian economy can help them in preparing for future possible disruptions.
The PSBs should also take advantage of the reduction in tax arbitrage given by the Government of India in various debt instruments to attract deposits to counter liquidity issues. The scenario has also got attention to rising cyber security concerns in the banking system and urged for a customer-centric approach with a strong policy and regulatory framework. This holistic approach will prepare Indian PSBs to stand rock solid in the stressed international banking scenario while accelerating the ambitious growth plan of the Indian economy.