India plans to start conducting twice-yearly stress tests on its banks, following in the footsteps of financial regulators in the US and Europe.

The Reserve Bank of India said yesterday that it had conducted rudimentary stress tests during the global financial crisis to check credit and interest rate risk. The bank said it would undertake more sophisticated tests in the future to build confidence in the country's banking system.

Duvvuri Subbarao, the RBI governor, speaking after the announcement of an abrupt tightening of monetary policy, said that India was “learning on the job” in its review of capital, liquidity and leverage standards. Mr Subbarao said that India needed to have more rigorous stress tests, in which bank balance sheets are checked to see how much financial pressure they can withstand in a simulated future crisis.