Bank crashes prompt review of India’s public banks
Public Sector Banks (PSBs)
India’s banks should undertake due diligence and adhere to the regulatory framework by focusing on risk management and diversification of deposits and assets base, the country’s finance minister has said.
Speaking in the light of recent high-profile bank failures in Europe and the US, Nirmala Sitharaman’s department has reviewed the performance of public sector banks (PSBs), gauging their financial health and resilience.
She urged the banks to remain vigilant about the interest rate risks and regularly undertake stress tests.
During a two-hour meeting with the banks’ bosses the discussion centred on the global scenario and the failure of the Silicon Valley Bank (SVB) and Signature Bank (SB), along with the issues leading to the Credit Suisse crisis.
The meeting was also attended by Minister of State for Finance Bhagwat Karad, Financial Services Secretary Vivek Joshi and other senior officials, an official statement said.
During the meeting, Sitharaman said that the PSBs must look at their business models closely to identify stress points, including concentration risks and adverse exposures, and the minister encouraged them to frame detailed crisis management and communication strategies.
The PSB chiefs told the meeting that they follow the 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, she was reassured by the PSBs that they monitor developments in the global banking sector and are taking all possible steps to safeguard their organisations from any potential financial shock.
All the major financial parameters indicate stable and resilient PSBs with robust financial health, it added.
Sitharaman also asked the banks to take focused measures to attract deposits, “given the steps taken by the government to reduce the tax arbitrage in some debt instruments and pivot their strengthened financial position to support the credit needs of the growing economy”.
India is still on course for 6% growth
S&P Global Rating has kept its forecast for India’s economic growth unchanged at 6% in the fiscal year starting on 1 April, rising to 6.9% in the following year.
In the quarterly economic update for Asia-Pacific, S&P saw the inflation rate easing to 5% in 2023-24 fiscal, from 6.8% in the current financial year.
It said India’s gross domestic product (GDP) was likely to grow by 7% in the current financial year ending March 31 (2022-23), before slowing to 6% in the next 2023-24 fiscal.
“India leads, with an average growth of 7% in 2024-2026,” the update said.
GDP is projected to rise to 6.9% in the following two financial years, 2024-25 and 2025-26, and rise to 7.1% in 2026-27.
“In India, domestic demand has traditionally led the economy. But it has become more sensitive to the global cycle lately, in part due to rising commodity exports; and its year-on-year GDP growth slowed to 4.4% in the fourth quarter (October-December 2022),” the rating agency said.
S&P said it expected the Reserve Bank of India to raise interest rates further following a recent hike in inflation.
“In our view, India’s Consumer Price Index (CPI) inflation should moderate to 5% in fiscal year 2024 (ending March 2024) but we also anticipate upside risks, including from weather-related factors,” it said.
Stating that the current account balances of energy-importing economies in the Asia-Pacific have deteriorated, the rating agency said in India, the external deficit reached about 3%-3.5% of GDP in 2022.
S&P Global Ratings maintained a “cautiously optimistic outlook for Asia-Pacific”, saying China’s economy was on track to recover this year.
External pressure from rising US interest rates will likely lead to rising interest rates in India, the company said.
