A few Indian bankers have highlighted possible areas of risk build-up in the banking system over the last six to eight months, RBI Shaktikanta Das said on Thursday.
Das highlighted several regulatory and supervisory measures taken by the Reserve Bank of India in the last few years to grapple with the Covid-19 pandemic, geopolitical conflicts and sharp monetary policy tightening globally.
"There has been a gradual and consistent turnaround in the banking system, despite the multiple headwinds," Das said, at the Mint BFSI Summit and Awards 2024.
To protect the financial system from these challenges, the RBI shifted to a principle-based and an activity-based approach, from an entity-based approach. All key indicators of scheduled commercial banks—capital adequacy, asset quality and profitability—have shown improvement in the last four years, he said.
Das highlighted the need for enhanced focus on IT systems and using technology to identify incipient risks in the banking system. "The key is to identify risks early, monitor them closely and manage them effectively."
The RBI Governor urged banks' senior management, board of directors, internal auditors and the risk management committees to be proactive and watchful of emerging risks. "Instilling an appropriate risk culture in the organisation is important. This needs to be driven by the board and senior management, with effective accountability at all levels," he said.
Das reiterated that the RBI closely monitors the asset liability mismatches and funding stability.
On the exponential rise in digital credit after the pandemic, Das pointed out a host of business conduct issues. This resulted in several regulatory dilemmas for the RBI as customer benefit and regulatory concerns were weighed against each other.
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