Indian banking sector adequately capitalized: Expert

- PSBs keen on maturity mismatches, liquidity buffers, interest rates and market risks

- Banks doing well in retail lending assets both under personal segments and MSMEs

Mumbai: Indian banking sector is adequately capitalised and has strong supervision and control, feels an expert in the wake of FM’s recent interaction with head honchos of the state-run lenders.

Union Finance Minister Nirmala Sitharaman chaired meeting last Saturday to review the preparedness of public-sector banks (PSBs) in wake of the stress in banking systems in the US and Europe

Review focused on PSBs preparedness along with due diligence through adherence to the regulatory framework by focusing on risk management, diversification of deposits and assets base.

Talking to Bizz Buzz, M Narendra, former CMD of Indian Overseas Bank, says: “Indian banking is adequately capitalised and with strong supervision and control.”

However, in view of the global crisis in select financial institutions and consequent fall of Silicon Valley Bank (SVB), Signature Bank and Swiss UBS taking over Credit Suisse, FM in her meeting with chiefs of PSBs has asked them to go by regulatory playbook, focus on robust risk management practices, he said.

Indian banks, he went on, continue to focus on retail deposits much diversified in terms of customer base less reliance on wholesale deposits. Similarly, banks must reduce concentration and large exposure in terms of lending assets. Banks have been doing well in terms of retail lending assets both under personal segments and MSMEs.

The asset liability management in terms of maturity mismatches, liquidity buffers, interest rates and market risks need constant monitoring and effective focus, he said.

In view of the interest rate increase substantially recent time, investment portfolio under all categories like trading, available for sale and held-to-maturity needs to be marked-to-market on daily basis for monitoring and duration and modified duration against risk limits fixed are to be evaluated for taking investment decision, he added.

Indian banks are in much better position on all these areas. However, there is no case for complacency and both regulator and management to monitor on dynamic basis.

During the review meeting, an open discussion was held with the MDs and CEOs of PSBs on the global scenario comprising the failure of the Silicon Valley Bank (SVB) and the Signature Bank (SB) along with issues leading to the crisis in Credit Suisse. Nirmala Sitharaman reviewed the exposure of PSBs to this developing and immediate external global financial stress from both the short and the long-term perspectives.

During the PSB review meeting on Saturday, the Finance Minister emphasized on preparedness along with due diligence through adherence to the regulatory framework by focusing on risk management, diversification of deposits and assets base. The Finance Minister underlined that PSBs must look at business models closely to identify stress points, including concentration risks and adverse exposures. Sitharaman also exhorted PSBs to use this opportunity to frame detailed crisis management and communication strategies.

The MDs & CEOs of the PSBs apprised the Finance Minister that they would follow best corporate governance practices, adhere to regulatory norms, ensure prudent liquidity management and continue to focus on having robust asset-liability and risk management. Further, Sitharaman was also informed by the PSBs that they were vigilant of developments in the global banking sector and are taking all possible steps to safeguard themselves from any potential financial shock.