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Team India reposes confidence in RBI amid US banking turmoil

All eyes on RBI as failure of US banks raises concerns

The Reserve Bank of India (RBI) is closely monitoring the brewing banking crisis in the US after the collapse of Silicon Valley Bank and Signature Bank which have already impacted the global markets including the Asian bourses. While concerns have risen on the implications, policymakers, industry captains and even the general public have opined that the Indian banking system continues to be resilient and is more or less fool proof under the aegis of the RBI.

Snapdeal founder Kunal Bahl in a tweet said that social media groups are buzzing with appreciation for Indian regulators like RBI who have been consistently conservative. “There is no doubt that time and again, their approach has ring-fenced India from systemic risks. We have a lot to thank them for. Just ask those stuck in Silicon Valley Bank right now,” he tweeted.

Bahl is not alone. Many voices have come up echoing the same sentiment.

RBI has typically managed crises well including steering through the Covid 19 pandemic.

The central bank, for months, maintained an accommodative stance to ensure adequate liquidity in the system while reinforcing stability in the economy. It drastically reduced interest rate with an eye on growth.

Even during the global financial crisis of 2008-09, RBI had sprung into action by slashing cash reserve ratio (CRR) – a percentage of deposits that banks are mandated to keep with the central bank. Between 0ctober 2008 and January 2009, RBI slashed CRR by 400 basis points or 4 percentage points. From 9 per cent, the CRR was brought down to 5 per cent, a move that boosted liquidity by Rs 1, 60,000 crore in the banking system. Not just that. The RBI had also reduced the statutory liquidity ratio – the percentage of deposits that banks have to keep in the form of liquid cash, gold or other securities – from 25 per cent to 24 per cent.

The Indian banks remained by and large untouched by the impact of the global crisis though the economic slowdown brought down their profitability and increased the level of non performing assets – loans that do not fetch any returns.

“Our banking system is strong..the RBI has been standing tall and has been vigilant throughout. We are confident that the RBI will manage this crisis well,” a policymaker told India Narrative.

Though the back to back failure of two US banks have led to jitters in the Asian markets including Sensex and Nifty, analysts said that there may not be any significant impact on Indian economy.

Also read: Collapse of Silicon Valley Bank will have limited impact on Indian startup ecosystem