New Delhi, March 25 -- The recent IndusInd episode raises several questions about how the Reserve Bank of India (RBI) uses its powers during financial stress. Beyond the immediate concerns of governance lapses and liquidity management, RBI's decision to rely on public sector banks (PSBs) to provide liquidity support, rather than directly intervening as the lender of last resort (LoLR), merits close examination.

On 10 March, IndusInd Bank disclosed that an internal review had uncovered a discrepancy in its rupee-dollar swap accounting. The irregularity would erode the bank's capital base by 2.5%. The management sought to reassure investors and depositors, stating that the impact would not threaten the bank's stability, and its promoter gr...