Rising interlinkage in Financial System under RBI scanner

http://www.financialexpress.com/news/rising-interlinkage-in-financial-system-under-rbi-scanner/972814/0

With insurance companies and mutual funds becoming the largest lenders to the banking system, the segments have become “vulnerable to the risk of contagion from the banking system”, according to the Reserve Bank of India.

The central bank, which conducted a contagion analysis of the financial system, says, “The largest net lenders in the system were insurance companies (Rs 182,800 crore) and asset management companies (Rs 259,100 crore), while the banks were the largest borrowers. This renders the lenders vulnerable to the risk of contagion from the banking system.”

The failure of a bank with large borrowings from insurance and mutual funds segments may have significant implications for the entire system, the RBI says, hinting at a possible tightening of norms, especially on short-term borrowings.

source: www.financialexpress.com