Will stick to tighter norms for financial companies: RBI

The Reserve Bank of India (RBI) would march on the path of tightening the regulation for financial companies despite them turning stronger in the past few quarters as vulnerabilities tend to build during good times, the central bank said.

"So far as India is concerned, both regulators and regulated entities need to stay the course with an unwavering commitment to ensuring a stable financial system," RBI Governor Shaktikanta Das wrote in the semi-annual Financial Stability Report. "It has to be remembered that seeds of vulnerability often get sown during good times when risks tend to get overlooked."

The RBI has been tightening the capital, inspection and reporting requirements for banks and NBFCs as the post-Covid reopening gathered pace.

As part of its efforts to improve risk containment, the RBI mandated banks to stress test their interest rate risk in banking books.

It also tightened the practice of default loss guarantee offered by the fintechs that were threatening to weaken the financial system.

While the regulator may be tightening the standards of supervision and regulation, the Indian financial system remains strong even as fault lines in the developed world are dominating discussions on existing vulnerabilities.

"The global financial system has been impacted by significant strains since early March 2023 from the banking turmoil in the US and Europe," said Das. "In contrast, the financial sector in India has been stable and resilient, as reflected in sustained growth in bank credit, low levels of non-performing assets and adequate capital and liquidity buffers."

The US had to deal with the collapse of some regional banks and the Swiss regulator had to rescue Credit Suisse with a shotgun marriage to rival UBS. In the US, the collapse of Silicon Valley Bank brought out how small banks were exposed to the sudden rise in interest rates. JP Morgan bought First Republic Bank to save it from bankruptcy.