The Reserve Bank of India (RBI) has started closely monitoring the business models of banks and financial institutions, RBI Governor Shaktikanta Das said on Thursday.

Amidst a climate of global financial stability, Das cautioned that deficiencies in a model can create risks in certain parts of the balance sheets and grow into a bigger crisis in due course.

Speaking at a global conference on financial resilience organised by the College of Supervisors in Mumbai, Das also advised Indian banks to assess financial risks and build their capital buffers beyond minimum regulatory norms.

“To be financially resilient, a bank should have adequate capital buffers and be able to generate earnings even in times of macroeconomic shocks. It should also have adequate liquidity to meet its financial obligations in various situations. Therefore, financial resilience is closely linked to a bank’s business model and strategy,” Das said.

Though Das said that the Indian banking system has remained resilient and unaffected by the financial instability seen in some advanced economies, he believed a close watch was still needed.

“The RBI has started looking at the business models of banks more closely. Aspects and deficiencies in the business model can spark a crisis in due course,” said Das.

“The recent events in the banking landscape of the US and Europe suggest that risks for an individual bank could crop up from segments of its balance sheet which might have been considered relatively safer. Hence, we expect the management and board of directors of each bank to continually assess the financial risks and focus on building up adequate capital and liquidity buffers even beyond the regulatory minimum for continued resilience and sustainable growth,” he added.