The Reserve Bank of India has asked the banks to formulate ‘stress tests’ as part of the risk management exercise to guard against possible danger to their solvency.
   “Banks shall put in place appropriate stress test policies and the relevant stress test framework for the various risk factors by September 30,” the RBI said in a communication to heads of commercial banks on Tuesday. The formal stress testing mechanism will come into operation from March 31, 2008, the apex bank added.
   The stress tests to be designed by each bank will help them in taking remedial action against possible risks like sudden economic downturn, interest rate fluctuation, foreign exchange rates, collapse of communication system, natural disasters, stock market crash, depletion of the country’s foreign exchange reserves etc.