“India’s domestic financial system is now in a much stronger position”: RBI Governor

RBI Governor Shaktikanta Das on Thursday said that the Indian financial system is in a “much stronger position,” characterised by robust capital adequacy, low levels of non-performing assets, and healthy profitability of banks and non-banking lenders.

Underscoring the imperative of fostering a future-ready ethos within the financial sector, Das also stressed the critical role of timely supervisory intervention in mitigating systemic risks.

The RBI Governor said this while delivering an address at the inaugural Global Conference on Financial Resilience organised by the College of Supervisors at the IGIDR Campus in Mumbai.

“India’s domestic financial system is now in a much stronger position than it was before we entered the period of the COVID crisis. Indian financial system is now in a much stronger position, characterised by robust capital adequacy, low levels of non-performing assets, and healthy profitability of banks and non-banking lenders, that is NBFCs,” he said.

He added, “I would like to compliment the banks and other financial sector entities for such a stellar performance in the year which has just ended on March 31. There is absolutely no room for complacency because the world is changing, challenges are coming, complexities are growing, and problems can originate from any corner of the financial system within the country, or the world because of something which may be completely unrelated to you and me…”

Governor Das began by referencing to global banking failures, including those in the United States, and the challenges faced by institutions like Credit Suisse, emphasizing the lessons learned from such incidents.

He acknowledged the detailed analysis conducted by the US Federal Reserve on bank failures and stressed the importance of proactive regulatory measures to prevent crises.

Highlighting RBI’s proactive approach, Governor Das cited the intervention in the Yes Bank crisis as a testament to the central bank’s ability to preemptively address financial instability.

He noted the advantages of RBI’s integrated approach in leveraging various facets of banking operations to manage crises effectively.

Addressing the diverse origins of financial crises, Governor Das identified internal deficiencies within organizations, external factors like climate change, technological disruptions, and undetected fraud as potential catalysts.

He emphasized the need for supervisors to enhance their methods and align them with evolving stress scenarios over time.

Governor Das outlined RBI’s recent supervisory initiatives, including the moderation of unsecured lending and reduction in bank exposure to Non-Banking Financial Companies (NBFCs), aimed at preempting future risks.

Das said, “Fortunately, all stakeholders in India, namely, the Reserve Bank, the Banks and Non-banking financial companies (NBFCs), and the government have made tangible efforts in this direction. India’s domestic financial system is now in a much stronger position, characterised by robust capital adequacy, low levels of nonperforming assets, and healthy profitability of banks and NBFCs.”

He stressed the importance of continuous vigilance despite current sectoral stability, urging financial institutions to embrace technological advancements while maintaining robust governance and ethical standards.

He highlighted the pivotal role of AI and machine learning in fraud prevention and operational efficiencies, underscoring the need for secure technological integrations aligned with business goals.

Das stated, “AI and ML can enhance predictive analytics and enable banks and NBFCs to identify potential risks and trends more accurately. These technologies can improve fraud detection by recognising unusual patterns and transactions in realtime. Thus, they can protect the institutions and their customers from financial crimes and frauds.”

He further added, “Operational efficiency can be improved through automation of routine tasks, which reduces human error and frees up resources for more strategic activities. Robotic process automation (RPA) can handle high-volume and repetitive tasks, such as data entry and transaction processing, more quickly and accurately than humans.”

Looking ahead, Governor Das outlined RBI’s commitment to regulatory stability, emphasizing a thematic and activity-based supervisory approach.

He highlighted RBI’s efforts to establish a unified supervision department and engage senior officers to foster closer collaboration with bank boards.

Governor Das expressed RBI’s ambition to position itself as a model for emerging economies, advocating for a holistic, customer-centric regulatory framework as RBI approaches its centenary.

Governor Das emphasized RBI’s ongoing initiatives, including the creation of a unified supervision department and the adoption of unconventional methods to enhance regulatory effectiveness.

He highlighted the proactive engagement of senior officers at Executive Director levels with bank boards to reinforce RBI’s oversight priorities.

Governor Das reiterated RBI’s vision for its centenary, aiming to position the institution as a benchmark for the Global South through a holistic, customer-centric regulatory framework.

These initiatives underscore RBI’s commitment to fostering financial resilience and maintaining high standards of governance in the dynamic global financial landscape.