Banks conduct Stress Tests (ST) as part of the regulatory capital framework for assessing minimum level of capital requirement under stressed situations as also from liquidity adequacy , risk management and strategic perspectives. A robust ST Framework (STF) will have a collaborative and engagement framework for credible challenge, both at senior and technical expert levels, of the assumptions, methodologies, scenarios and results, assessment of its ongoing performance and effectiveness. (Principle 2 of Sound Principles of Stress Testing- BCBS document, October 2018). Scenario building through visualisation of extreme events/ severe risk events is at the core of STF. But this could fall into stereotypes by focusing only on past experiences. Admittedly, very few STs would have envisaged the onset of a global public health crisis (GPHC) with severe macroeconomic consequences across impacting financial institutions and the system at large so severely. Does this demand a resetting of one of the key components of the STF? Again, are the tools and models that the banks have in their STF arsenal adequate and right fit for certain extreme events such as those that could emanate from COVID 19 like events? Does banks’ STFs consider possible feedback and second round effects? If so, how the testing of current pandemic driven stress should be calibrated over time?

In the above background, the CAFRAL webinar seeks to explore the impact of COVID-19 on the balance sheet of Indian banks through the mechanism of STs. Speakers will explore the ingredients and features that may be useful in the design of such STs at the institution level so that remedial steps to protect their balance sheets can be taken early.

This 90 minutes long webinar is intended for bank CROs & CFOs with the objective of sharing best industry level approaches in the design of COVID-19 stress tests.