•  Though, banks' exposure to the risky assets has been severely restricted by Reserve Bank’s regulatory actions, should there be a reversal of capital flows, asset prices may decline. Further, banks in India have invested significantly in government debt and other fixed income securities.
If a rise in international rates gets reflected in domestic interest rates, banks will have to mark down the value of their investment portfolio. However, the banking sector has acquired some added strength to absorb such probable shocks, largely aided by regulatory actions.