RBI Governor to Banks: Pursue Business Growth Without Unacceptable Risks

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Reserve Bank of India (RBI) Governor, Shaktikanta Das highlighted the importance of staying vigilant in the banking sector during his speech on Thursday (June 20, 2024) at the College of Supervisors in Mumbai hosted by the second international conference on financial resilience.

During the event, Governor Das discussed past major banking failures globally. He mentioned the crisis in the United States after the collapse of the First Republic and Silicon Valley Bank in 2023.

He also talked about the downfall of Credit Suisse, which was later acquired by UBS, another major Swiss bank.

Highlighting worries about global supervisors falling behind economic cycles, the central bank governor stressed the urgent need for improved supervision. This includes detecting early signs of crises and implementing effective measures to prevent them.

Also, there is a need for strong credit assessment processes and risk management frameworks. He urged banks and NBFCs to improve oversight to reduce risks in unsecured lending.

“Pursuit of business growth is important, but it should never come at the expense of taking on unacceptable risks. Robust risk mitigants are essential for ensuring long-term success and resilience of a regulated entity as well as the overall financial system,” Das said.

The RBI has noticed a rise in demand for unsecured loans, which are loans without collateral. This has raised concerns about potential higher default rates and its impact on the financial system.

Last year, the central bank increased the risk weight on consumer loans from commercial banks and NBFCs by 25 percentage points. Consumer credit now carries a risk weight of 125 percent, up from 100 percent.

The governor emphasized the importance of supervisors being proactive in addressing crises. He highlighted the RBI’s ability to utilize different tools to manage crisis effectively.

Also Read: Monetary Policy Meet June 2024: RBI Keeps Repo Rate Unchanged at 6.5%

He also mentioned that the central bank doesn’t plan to make regulatory changes unnecessarily.

Meanwhile, Das highlighted that the Indian financial system is in a much better position than the Covid pandemic.

He emphasized how artificial intelligence (AI) and machine learning (ML) can improve predictive analysis. This enables banks and NBFCs to identify potential risks and trends more accurately.

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