Financial System Resilience
RBI Governor Urges Enhanced Vigilance And Scenario Planning Against Future Financial Shocks
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Malhotra said RBI’s assessment of resilience is supported by healthy balance sheets at banks and non-bank financial companies (NBFCs), and emphasized that the financial system should continue providing services even under severe stress.
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The RBI governor called for more granular monitoring data, including information on non-banking financial institutions, interconnected exposures, technological developments and cross-border positions.
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The European Systemic Risk Board was established 15 years ago in the wake of the euro sovereign debt crisis; its macroprudential framework has since been strengthened in response to weaknesses exposed by the global financial crisis.
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The European assessment says banks weathered the pandemic, Russia’s war in Ukraine, the energy crisis and the sharp 2022–23 interest-rate increases relatively well, aided by stronger capital, tighter supervision and improved risk management.
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The article cites ECB projections for euro-area growth of 0.9% this year and 1.4% in 2027, with inflation forecast to ease from 3.0% this year to 2.1% in 2028. Recent energy-price increases are adding to inflation risks, while tighter financial conditions weigh on growth.
RBI Governor Sanjay Malhotra warned that financial resilience cannot be assumed and called for constant vigilance against future shocks. LiveMint reported that he cautioned against complacency, noting that prolonged stability can breed risky behavior. The RBI chief stressed policymakers must prepare for inevitable crises rather than believe they can prevent them entirely.
Malhotra said future risks may come from geopolitical events, cyberattacks, technology failures, or beyond the banking sector entirely. LiveMint noted he called for better data collection, network analysis, and stress-testing scenarios. Europe's financial regulators echo this concern, saying banks have weathered recent crises but face mounting threats from cyber attacks, climate change, and global tensions.Deccan Herald reported that Finance Minister Nirmala Sitharaman emphasized India's fundamentals remain strong despite external headwinds.
India's Financial System Shows Strength but Needs Monitoring
The RBI governor cited healthy balance sheets at banks and non-bank financial companies (NBFCs) as evidence of current resilience. LiveMint reported that Malhotra insisted the financial system must keep delivering services even during severe stress. However, he identified critical data gaps: granular information on non-banking institutions, interconnected exposures, tech developments, and cross-border positions remain incomplete.
The Economic Times noted that Finance Minister Sitharaman credited India's decade-long resilience to fiscal discipline, infrastructure investment, and banking reforms. She highlighted the country's "structural autonomy" as a safeguard. This foundation helps India weather geopolitical shocks that have tested global markets.
Europe's Banks Weathered Multiple Crises Yet Face New Threats
European banks successfully absorbed the pandemic, Russia's Ukraine invasion, the energy crisis, and aggressive 2022-23 interest-rate hikes. Stronger capital buffers, tighter supervision, and better risk management protected the system. The European Systemic Risk Board was created 15 years ago following the euro debt crisis, refining its macroprudential safeguards over time.
Emerging Risks Beyond Traditional Banking Sectors
Malhotra warned that systemic risks increasingly originate outside traditional banking. Cyberattacks on financial infrastructure, geopolitical spillovers, and technology failures pose novel threats. LiveMint reported his call for enhanced monitoring of these non-traditional vulnerabilities. European regulators similarly flagged cyber threats and climate risks as testing financial stability.
Growth Prospects Clouded by Inflation and Tight Conditions
The ECB projects euro-area growth of 0.9% this year, rising to 1.4% by 2027. Inflation is forecast to fall from 3.0% to 2.1% over the same period. Recent energy-price spikes add inflation risk while tighter financial conditions weigh on expansion. Fortune India noted that Finance Minister Sitharaman sees India's economy maintaining resilience despite these global headwinds.
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