India's banking system vulnerable to financial contagion
Central bank's study involved top five most connected lenders under a severe stress scenario
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Mumbai
CLOSE ties between India's lenders would leave the banking system especially vulnerable to contagion in case of trouble at a single institution, the central bank warned in a report on Monday.
That means trouble at a single bank among the top five most connected lenders in India could lead to contagion that wipes out nearly 50 per cent of Tier I capital in the banking system under a severe stress scenario, the Reserve Bank of India (RBI) said in its semi-annual financial stability report. "This underscores the importance of monitoring not just interconnectedness, but also the counterparties and magnitude of exposure involved in the connection," the RBI said.
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