Business Growth Should Never Come at the Expense of Unacceptable Risks, Says RBI Governor Shaktikanta Das
Mumbai: The Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday said that while lenders should pursue business growth, it should not be at the expense of taking on unacceptable risks. He called on banks and non-banking financial companies (NBFCs) to strengthen their oversight mechanisms to mitigate risks associated with unsecured lending.
“While business models may be designed to drive profitability and growth, they sometimes contain vulnerabilities that may not be apparent. 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,” said Das while speaking at the second global conference on financial resilience organised by the College of Supervisors in Mumbai.
Das said that the central bank’s timely action has resulted in moderation of vulnerabilities in unsecured loans. “Our timely action resulted in slowing down growth of unsecured loans. If left unattended, vulnerabilities on unsecured loans could have become a bigger problem.” Last year, the central bank increased the risk weight on consumer loans advanced by commercial banks and non-banking finance companies by 25 percentage points. The consumer credit of banks and NBFCs attracts a risk weight of 125 percent, from 100 per cent earlier.
Regarding supervision, the RBI governor stressed the need to anticipate the development of a crisis and take timely action. “It is our endeavour to smell a crisis. Supervision has become a very complex task," he added.
He said that "necessary policy actions" are on the anvil for positioning the Reserve Bank as a model central bank of the Global South. "As the Reserve Bank approaches its centenary year, we have drawn up strategies that will gear it up to remain future-ready for India's fast-growing economy.”
“Our goal is to make the Reserve Bank's supervision a global model, by building a ‘Through the Cycle’ Risk Assessment Framework with continuous Horizon Scanning and a Holistic Risk Assessment. It also envisages having a more customer-centric framework that protects and promotes customers' interest by improving the conduct of supervised entities," he said.
Das said that 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.
