Banks need to do stress-testing: RBI | india | Hindustan Times
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Banks need to do stress-testing: RBI

The country’s financial sector is well-cushioned amid a global meltdown in the sector, with resilience and liquid cash providing strength, but could do with some fine tuning, Reserve Bank of India’s deputy governor Rakesh Mohan has said.

india Updated: Mar 30, 2009 20:38 IST
HT Correspondent

The country’s financial sector is well-cushioned amid a global meltdown in the sector, with resilience and liquid cash providing strength, but could do with some fine tuning, Reserve Bank of India’s deputy governor Rakesh Mohan has said.

The Committee on Financial Sector Assessment (CFSA) set up by the Centre and RBI, headed by Mohan, submitted its report on Monday. The report says an 8 per cent GDP growth is sustainable in the medium term, but given the current uncertainties, a short-term is cloudy.

“An 8 plus per cent growth is sustainable in the medium term due to high demand however one cannot rule out deceleration in the short-term,” said Mohan.

“The commercial banking system is broadly sound and can withstand significant shocks from large potential changes. However there is a need to strengthen the liquidity management and there is a need for stress testing by individual banks,” he said.

Stress testing is a technique to assess vulnerability of the financial system in the face of shocks.

The report says even though urban co-operative banks (UCBs) and regional rural banks have shown improvement in their financials, corporate governance issues remain the key challenges for them, while the rural co-operative sector still shows significant financial weakness. Non-banking financial companies (NBFCs) and housing finance companies (HFCs) have shown healthy financial indicators though there are some financing concerns.

“Concerns about credit risk remain muted at present even though there is a need for close monitoring of such risks in the current scenario,” said Mohan.

RBI says the foreign exchange market in India has shown the fastest growth in the world, while the sovereign debt market has shown significant growth in volume and liquidity and equity markets have shown a huge improvement in the market and settlement infrastructure.

However, the committee has found gaps regarding responsibility and operations, independence of regulators’ inspection and surveillance powers.