Swaminathan: India's banking resilience built by design
Reserve Bank of India Deputy Governor Swaminathan J outlined how India's banking sector achieved resilience through deliberate policy design. Speaking at Columbia University, he highlighted lessons from the country's experience.
Strength with vigilance
India today stands on a relatively strong macroeconomic footing, with domestic economic activity showing resilience amid geopolitical uncertainty and supply-chain disruptions.
The Indian financial system enters this uncertain phase with healthier balance sheets, comfortable capital buffers, improved profitability, and non-performing assets at multi-decade lows.
Deputy Governor Swaminathan J emphasized that the best time to build resilience is when conditions are favourable, as risk often builds quietly in good times.
India's recent banking resilience reflects policy learning, supervisory vigilance, stronger prudential frameworks, transparent recognition of stress, credible repair mechanisms, and improvements within banks themselves.
This 'resilience by design' is built at multiple levels: in the rules governing banks, in supervisory systems, in resolution architecture, and in the behaviour of banks themselves.
Unmasking stress, building buffers
Transparent recognition of stress is a critical dimension, as India's post-2015 Asset Quality Review (AQR) revealed stress built up over years due to rapid credit growth and risk management gaps.
The AQR transformed the banking system's information regime, mandating provisioning, recapitalisation, and supervisory intervention.
Delayed recognition, the Deputy Governor noted, weakens credit discipline and increases resolution burdens.
This recognition must be followed by credible action to strengthen balance sheets.
India's coordinated public policy response included the Insolvency and Bankruptcy Code, recapitalisation of public sector banks, and consolidation.
Banks themselves improved provisioning, pursued recoveries, and raised capital, fostering more transparent and diversified balance sheets.
Proactive stability pays off
India's experience offers a compelling blueprint for emerging economies navigating global uncertainties.
Its 'resilience by design' approach, emphasizing proactive recognition and adaptive regulation, demonstrates that stability is a deliberate outcome, not a byproduct of growth.
This model underscores the critical role of robust governance and continuous learning within institutions to withstand future shocks.