According to the Finance Ministry, India’s banking system is “strong enough to survive” the stress brought on by rising interest rates and would continue to support economic growth.
A Silicon Valley Bank (SVB)-like event is far less likely to occur in India due to the RBI’s extensive regulatory actions, improved bank balance sheets, and Indian banking system sensitivity to frequent interest rate cycles. These factors all bode well for the country’s financial stability.
The Reserve Bank of India (RBI) and the government, according to the report, have taken steps in recent years to increase the stability and risk-absorbing capability of the banking sector. The RBI is rigorous in its biannual evaluation of cooperative banks, non-banking financial companies, and scheduled commercial banks (SCBs).
While in advanced economies long-term interest rates were close to zero for a prolonged period of time and as rates rose sharply within a short period of time to reduce inflationary pressures, vulnerabilities in the financial markets came to the fore, Indian banks are well-equipped to handle cycles because of their exposure to and sensitivity to regular interest rate cycles.
Due to the ultra-low policy rate that has been in place in the US since the global financial crisis, he disparity between deposit rates and the policy rate in India is far narrower than it is in the US. Withdrawals of all deposits remain unlikely because the spread is not as significant in India’s scenario.