Shaktikanta Das, Governor of the Reserve Bank of India, has warned banks against any accumulation of asset-liability mismatches, stating that both are detrimental to financial stability, and implying that the ongoing crisis in the US banking system appears to be the result of such mismatches.
On Friday, the Governor delivered the annual KP Hormis (Federal Bank founder) commemorative lecture in Kochi and was quick to acknowledge and assure that the domestic financial sector is stable and that the worst of the inflation is behind us.
Mr Das stated, “We have nothing to fear as our external debt is manageable and thus appreciation of the greenback does not pose any problem to us” amidst the ongoing volatility in exchange rates, particularly due to the excessive appreciation of the US dollar and its impact on nations’ external debt servicing ability.
The RBI Governor focused the majority of his speech on India’s G20 presidency, and in that context, he called for more coordinated efforts by the world’s 20 largest economies to assist countries facing high external debt risks as a result of the US dollar’s rise.
He stated that the organisation must provide climate change financing to the majority of affected countries on a war footing.
Concerning the US baking crisis, in which two mid-sized banks (Silicon Valley Bank and First Republic Bank) with over $200 billion in balance sheets each went bankrupt last week, he stated that the ongoing crisis emphasises the importance of robust regulations that focus on sustainable growth rather than excessive build-up on either the asset or liability side.
Mr Das, who did not name the US bank, stated that one of them appeared to have unmanageable deposits in excess of their assets side business.
Mr Das, an outspoken critic of private digital currencies, stated that the ongoing US banking crisis clearly demonstrates the risks of private cryptocurrencies to the financial system.
