An umbilical cord links weak banks and economic crises. What has happened in the US these past few months is only the latest proof of this.
So the huge six-volume report on the state of the Indian financial sector that was released by the Reserve Bank of India (RBI) on Monday is welcome.
Ploughing through the entire report will take weeks, if not months. But a quick dip is still worthwhile.
The tone of the report may seem hubristic, with confident statements about how India has “robust and healthy” banks. But these also happen to be statements of fact. There are still many threats to the Indian economy—especially a public finance mess and some overleveraged firms. But the banks are still in fine fettle, especially when compared with their global peers.
That is what emerges from the “stress test” done on the banking sector. Further work is needed, as the RBI report says. One, stress tests of individual banks. Two, a special financial stability unit of the Indian central bank.
Strong banks are insurance against a worsening global crisis.