RBI Governor Das Urges Banks to Enhance Governance and Risk Management

Historical Context: The Reserve Bank of India (RBI) has a long-standing tradition of regulating and supervising the banking sector to ensure financial stability and protect depositors’ interests. Established in 1935, the RBI has played a crucial role in shaping India’s monetary policy and banking regulations. Over the years, the RBI has introduced various reforms to strengthen the banking system, especially in the wake of financial crises and economic challenges.

Article: RBI Governor Shaktikanta Das on Wednesday called upon banks to further enhance their governance standards, risk management practices, and compliance culture. This directive comes as part of the Reserve Bank’s ongoing engagement with the senior management of its regulated entities.

In a series of meetings with the managing directors (MDs) and chief executive officers (CEOs) of public sector banks and select private banks, Governor Das highlighted the continuous improvement in banks’ asset quality, loan provisioning, capital adequacy, and profitability.

“While acknowledging the higher resilience and strength of the banking sector, it is crucial to further strengthen governance standards, risk management practices, and compliance culture in banks,” Das emphasized.

Key issues discussed included the persistent gap between credit and deposit growth, liquidity risk management, asset-liability management (ALM) issues, and trends in unsecured retail lending. Governor Das also stressed the importance of robust cybersecurity controls and effective management of third-party risks.

He urged banks to intensify efforts against ‘mule accounts’ and enhance customer awareness and education initiatives to curb digital frauds. Other topics of discussion included strengthening assurance functions, credit flows to Micro, Small, and Medium Enterprises (MSMEs), increasing the use of the Indian Rupee for cross-border transactions, and banks’ participation in the RBI’s innovation initiatives.

The meetings were attended by Deputy Governors M Rajeshwar Rao and Swaminathan J, along with executive directors in charge of regulation and supervision functions. The previous such meetings were held on February 14, 2024.

Summary in Bullet Points:

• RBI Governor Shaktikanta Das urges banks to enhance governance, risk management, and compliance.
• Continuous improvement noted in banks’ asset quality, loan provisioning, capital adequacy, and profitability.
• Key issues discussed: credit-deposit growth gap, liquidity risk, ALM issues, and unsecured retail lending trends.
• Emphasis on robust cybersecurity controls and effective third-party risk management.
• Urged banks to combat ‘mule accounts’ and enhance customer awareness to curb digital frauds.
• Discussions included credit flows to MSMEs, use of Indian Rupee for cross-border transactions, and participation in RBI’s innovation initiatives.
• Meetings attended by Deputy Governors and executive directors in charge of regulation and supervision.
• Previous meetings held on February 14, 2024.