No Data with RBI on Gains Or Losses of Banks From Their Investments In Capital Markets

The Minister of State in the Ministry of Finance (Shri Pankaj Chaudhary) has responded to a question raised in the Rajya Sabha by Smt. Jebi Mather Hisham regarding the losses suffered by Indian banks due to mutual fund investments during a recent stock market crash and the steps taken to address the impact.

Below are listed the questions raised in Rajya Sabha:

(a) The total financial loss incurred by Indian Banks due to their mutual fund investments during the recent stock market crash, the bank-wise details thereof;

(b) The concrete steps taken to enhance oversight of bank’s mutual fund investments to safeguard public deposits and mitigate risks;

(c) The impact of stock market crash on retail investors in mutual funds through banks, the measures being implemented to restore confidence and stabilize the financial market; and

(d) Whether Government plans to assist affected banks with additional capitalisation, whether specific recovery strategies are being developed to address the overall impact on the banking sector?

Let’s explain the answer provided by the Minister of State in the Ministry of Finance (Shri Pankaj Chaudhary).

• The Reserve Bank of India (RBI) has asked all its affiliated banks to follow a detailed investment policy approved by their board and put limitations on how much they can invest in the stock market, including mutual funds. The RBI has said that the profits and losses made from their investments in the stock market are not monitored by it.
• Banks have their own system for managing risks related to investments. This system consists of regularly checking their investment portfolios, performing stress tests to see how market changes could affect them, and monitoring the performance of their investments. To ensure they follow regulations and protect the interests of their stakeholders and public deposits, the results of these checks are reported to the bank’s board.
• Banks also run financial awareness campaigns to help customers invest in mutual funds that match their risk tolerance and financial goals. They encourage investors to stay calm and avoid selling investments in a stress, and they educate them on the different types of investments and their risks and benefits.
  
• In accordance with the RBI’s Financial Stability Report of December 2024, banks have limited exposure to the stock market due to the rules in place. As a result, the impact of a significant decline in stock prices on banks’ capital will be smaller.
  
• In addition to this, as of December 31, 2024, banks are well-capitalized, with a Capital-to-Risk-Weighted Assets Ratio (CRAR) of 16.4%, which is much greater than the minimum required by regulators. This means banks are financially strong and can manage potential risks.