Reserve Bank of India Governor Shaktikanta Das has warned banks about asset-liability mismatches emerging. He said both are detrimental to financial stability and hinted that the ongoing crisis in the US banking system appears to be a result of such mismatches.
Speaking at the annual memorial lecture of KP Hormis (Founder of the Federal Bank) in Kochi, the governor was quick to acknowledge and reassure that the domestic financial sector is stable and the worst of inflation is behind it.
Amid continued volatility in exchange rates, especially due to the excessive appreciation of the US dollar, and its impact on nations’ ability to service foreign debt, Das said: “We have nothing to fear as our external debt is manageable and therefore appreciation of the dollar is no problem for us”.
The RBI governor focused most of the speech on India’s G20 presidency and in this context he called for more coordinated efforts by the group of the world’s 20 largest economies to help those countries with high external debt risks due to the appreciation of the US dollar.
He said the group should provide climate change funding to the most affected countries on a war footing.
Speaking of the US baking crisis, which saw two medium-sized banks (Silicon Valley Bank and First Republic Bank) with more than $200 billion in balance sheets each fail last week, he said the ongoing crisis underlined the importance of robust regulation aimed at sustainable highlights growth. and no excessive build-up, either on the asset or liability side.
Mr Das, without naming the US bank, said one of them had seemingly unmanageable deposits that exceeded their operations on the asset side.
Mr Das, who is an open critic of private digital currencies, said the ongoing US banking crisis also clearly shows the risks of private cryptocurrencies to the financial system.