RBI's Job To Flag Concern; Remedies Must Come From Institutions: Shaktikanta Das

With the Reserve Bank of India taking a keener interest in lending business models that could foster risk, RBI Governor Shaktikanta Das stated on Thursday that the regulator may raise red flags, but the solutions have to come from the regulated entities.

"Our approach is to flag deficiencies in this area to the senior management or the board of directors of individual banks for remedial action. Remedial action has to be taken by them," Das said while speaking at the Global Conference on Financial Resilience on Thursday.

The regulator's job is to point out their discomfort or concern about certain aspects of their business model, which may become a bigger challenge going forward, Das said.

The proliferation of digital lending by non-banking financial companies and fintechs has also brought with it certain challenges related to fair practises and consumer protection, Das noted during his speech. The RBI's digital lending guidelines aim to ensure that lending activities are conducted in a prudent, fair, and transparent manner, he said.

RBI's current approach to regulation is built on three pillars, Das said. Those are:

• Strengthening assurance and governance at regulated entities.

• Identifying and addressing the root causes of vulnerabilities.

• Strengthening RBI's supervisory analytics.

"RBI has also taken a keen interest in the functioning of statutory auditors of regulated entities," Das said.

Aggressive credit growth and increased risky asset exposure could raise asset quality challenges in the longer term for NBFCs in India, according to a report from Fitch Ratings on Thursday.

Recent events in the U.S. and Europe indicate that risks for banks can also emerge from a part of their balance sheet, that was otherwise considered safe, Das said.

"Cybersecurity risks also remain top of the list when it comes to operational risks for financial institutions," the governor said.