The Reserve Bank of India (RBI) has started closely monitoring the business models of banks and financial institutions, the apex bank's Governor Shaktikanta Das said on Thursday at an event in Mumbai.
Keeping the recent banking crisis in Europe and the United States in mind, Das said an inappropriate bank model could create risks in certain parts of the balance sheets and blow up into a bigger crisis in the future.
Speaking at the Global Conference on Financial Resilience, Das said that the recent banking crisis has raised questions about the business models of individual banks that have faced challenges.
"The organisations must be able to protect themselves from adverse incidents. Often vulnerabilities arise from inappropriate business models adopted by banks and other financial entities. Over aggressive growth strategies, mindless pursuit of bottom lines are often precursors for future problems," Das stated.
To be financially resilient, Das said, the banks should have adequate capital buffers and be able to generate earnings even in times of severe macroeconomic shocks. They should also have adequate liquidity to meet obligations in various situations.
Therefore, financial resilience is closely linked to a bank's business model and strategy, he said.
In March, Credit Suisse's share price plunged nearly 30%, sparking fears of a liquidity crunch.
The incident followed the collapse of several US financial institutions, including Silicon Valley Bank, jeopardising Americans' trust in US regional banks and leading many customers to move millions of dollars in deposits to bigger institutions.