Finance Ministry has said that the attunement of the Indian banking system to frequent interest rate cycles augurs well for India’s financial stability and significantly reduces the probability of a Silicon Valley Bank-like event occurring.
Recommended Articles
View All
Mann Ki Baat — here's how it became the ideal platform to discuss key healthcare issues and solutions in India
Apr 26, 2023 IST8 Min(s) Read
New dividend, bonus shares policy in Gujarat: Here is how the listed entities stack up
Apr 26, 2023 IST2 Min(s) Read
Karnataka's 4% Muslim reservation row — from history to election rhetoric
Apr 26, 2023 IST6 Min(s) Read
Healthcare in the era of AI — Illumina Asia-Pac medical head on the expanded scope of precision medicine
Apr 26, 2023 IST3 Min(s) Read
The ministry said the exposure and attunement to regular interest rate cycles have made Indian banks well-equipped to handle the cycles. It said that the spread between deposit rates and the policy rate in India is much lower compared to that in the US and since the spread is not as large in India’s case, withdrawal of deposits en masse remains an "improbable event".
Notably, 60.1 percent of India’s deposits are with public sector banks (PSBs) and 63 percent of total deposits are owned by households considered sticky retail customers; therefore, deposit withdrawals in this category will remain limited, as per the ministry.
Additionally, macro stress tests reveal that for an increase of 250 basis points (bps) in yields of banks’ HTM portfolios, no commercial bank would fall short of its regulatory Capital to Risk-weighted assets Ratio (CRAR). RBI has also stipulated that banks cannot place more than 23 percent of their deposit liabilities in their HTM portfolios.
A 10 percent loss sustained in banks’ HTM portfolios will have only a deposit impact of 2.3 percent. Hence, the RBI remains meticulous in its bi-annual assessment of not just SCBs (scheduled commercial banks), NBFCs (non-banking financial institutions) and cooperative banks.
Indian banks don't hold a majority of their assets in the form of bonds and for the top ten banks loans constitute more than 50 percent of their total assets, making banks more immune to the rising interest rate cycle.
Also read: Banking system headed for more trouble after SVB, Credit Suisse rescues, says Raghuram Rajan
Net Interest Margin, an indicator of a bank’s profitability and growth for all major banks, is high, implying efficient investment by banks.
The ratio of net NPA to net advances has been low and witnessed a declining trend
Further, the capital adequacy ratio for the top 10 major banks has been well above Basel III Norms interest rate cycles have been quite prominent in India, aligning with RBI's financial conditions.
