Worst of inflation behind us

The Reserve Bank of India (RBI) Governor’s note of cautious optimism that the worst seems to be behind us both in terms of growth and inflation comes with a terse reminder of the criticality of banking sector regulation and supervision. In the light of banks in the US going belly up, RBI chief Shaktikanta Das has driven home the importance of robust regulations that focus on sustainable growth and ensure there is no excessive build-up either on the asset or the liability side. An open critic of private digital currencies, he also sees in the ongoing US banking crisis the perils of cryptocurrencies. Das’ assertion that the Indian banking system continues to be stable and resilient is reassuring. Still, lenders would do well to pay heed to his message of adopting vigorous risk management practices, conduct periodic stress tests and build sufficient capital buffers. A close watch at the business models of banks is vital.

The financial system should ensure that deposits and credit grow sustainably; it also needs to examine interest rate-related risks. The US crisis is a textbook case of an asset-liability mismatch. With deposits growing faster than credit during the Covid period, surplus liquidity was invested in government and private sector bonds. The steep rise in interest rates since the beginning of 2022 resulted in huge losses in the bond portfolios. With depositors fast pulling money out, the banks were trapped with several loss-making bonds and few liquid assets. Proper risk assessment is crucial, especially when interest rates are kept high in a bid to contain inflation, which remains elevated.

Nearly 1,050 crore retail digital payment transactions worth

Rs 51 lakh crore were processed in India in January alone. Against the backdrop of a rise in customer complaints related to online transactions, banks have been asked to focus on resolving these swiftly. According to the RBI Governor, every failed transaction, every fraud attempted or actually carried out, every complaint that is not satisfactorily addressed should be a cause for concern and must invite a detailed root cause analysis. That’s the correct prescription.

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