The government has asked public sector banks (PSBs) to focus on their stress testing methods after they were found to have fallen behind on developing models that are meant to ward off risks of failure, according to a Bloomberg report.
The report also said that none of the PSBs, 12 in total, have built comprehensive stress testing models on scenarios in line with recommendations.
It also said the banks have not implemented models, which include more than 1,000 scenarios such as the extent of historical data, number of risk types and rare events.
It was reviews on the March 25 meeting in which Finance Minister Nirmala Sitharaman reviewed the performance of public sector banks (PSBs) on various financial health parameters and their resilience in the wake of the current global financial scenario emanating from the failure of some international banks in the US and Europe.
She urged the banks to remain vigilant about the interest rate risks and regularly undertake stress tests.
During the two hours meeting with MDs and CEOs of PSBs, an open discussion was held on the global scenario amid the failure of the Silicon Valley Bank (SVB) and Signature Bank (SB), along with the issues leading to the crisis in Credit Suisse.
The meeting was also attended by Minister of State for Finance Bhagwat Karad, Financial Services Secretary Vivek Joshi and other senior officials, an official statement said.
She also discussed the developing and immediate external global financial stress from both short and long-term perspectives.
During the PSB review meeting, she emphasised that the banks should undertake due diligence and adhere to the regulatory framework by focusing on risk management and diversification of deposits and assets base.
The finance minister underlined that PSBs must look at business models closely to identify stress points, including concentration risks and adverse exposures, the statement said, adding that she also exhorted PSBs to use this opportunity to frame detailed crisis management and communication strategies.
The chiefs of PSBs apprised Sitharaman that they follow the best corporate governance practices, adhere to regulatory norms, ensure prudent liquidity management and continue to focus on having robust asset-liability and risk management.
Further, she was also informed by the PSBs that they are vigilant of developments in the global banking sector and are taking all possible steps to safeguard themselves from any potential financial shock. All the major financial parameters indicate stable and resilient PSBs with robust financial health, it added.
The minister also stressed that PSBs must leverage the full potential of branches opened in International Financial Services Centres in GIFT City Gujarat to identify international opportunities, including prospects related to Persons of Indian Origin (PIOs).
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