The government directed the state-owned banks to increase vigilance to the predominant financial stress in the west. Finance Minister Nirmala Sitharaman advised the banks to identify the stress points and adverse exposures. The public sector banks are to prepare an explanatory plan on various risks in the market. Moreover, it will extend multiple communication strategies to handle any extremity. The public sector banks must submit that to the government within two weeks.
The move comes after significant banks like Silicon Valley Bank collapsed. Its financial condition had declined slowly, and the scope for improvements stopped when the Federal Deposit Insurance Corporation announced SVB had failed. As most of the depositors were technology startups, the slowdown in the technology sector left them with no choice but to rely on their deposits. The downfall of SVB was triggered by many startups tapping into their deposits which led Silicon Valley Bank to sell bonds.
The Indian IT sector has shown anxiety over the fall of SVB as it was a leading lender and depositor of Indian startups and capital ventures. However, the Indian economy ensures reduced damage by such impacts by protective measures and tools like the Investment Fluctuation Reserve (IFR). IFR is a reserve generated by transferring the profits made in a period of low interest rates. Government is aware that, however, there is only so much that shock absorbers can do.Â
Therefore, the Finance Minister conducted a meeting to analyse the performance of public sector banks and overview their flexibility in terms of contemporary financial risks. The state-run banks were advised to concentrate on financial risk management and expand the deposits and assets.
