Business growth should never be at the cost of unacceptable risks: Das

Business growth should never be at the cost of unacceptable risks: Das


Reserve Bank of India (RBI) Governor Shaktikanta Das.

Reserve Bank of India (RBI) Governor Shaktikanta Das. | Photo credit: ANI

Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said banks and NBFCs must exercise caution to ensure that the critical pursuit of growth does not translate into unacceptable risks that could undermine both the institution and overall financial stability.

“While business models may be designed to promote profitability and growth, they sometimes contain vulnerabilities that may not be obvious,” Mr. Das said in his address at the 2nd Global Conference on Financial Resilience organised by RBI's College of Supervisors in Mumbai. “The pursuit of business growth is important, but it should never come at the cost of taking unacceptable risks. Strong risk mitigation is essential to ensure the long-term success and resilience of a regulated entity as well as the overall financial system,” he emphasised.

Emphasising that the RBI has significantly strengthened its supervisory systems, and moved beyond an entity-centric approach to a more thematic and activity-based approach, he said the central bank is now focusing on the sustainability of the business models of banks and NBFCs.

“Root cause analysis of problems and vulnerabilities is carried out. Whenever we see or smell a crisis, preemptive action is taken,” he said.

He said that in November, RBI had put regulatory restrictions on unsecured retail lending and some other aspects, and though the core numbers and parameters looked good at that time, “we thought it was better to act preemptively and slow down the loan growth that was happening in these areas”. “We could clearly see some evidence of weakening of underwriting standards, proper appraisals not being done and a mindset of going for unsecured loans,” he added.

“I am happy to report that our timely action has resulted in a situation where the growth of unsecured loans, which was in the order of 30% year-on-year, has come down to about 23%. Similarly, bank lending to NBFCs, which was about 29-30%, has come down to about 18%. So, supervisors have a very important role to play here,” Mr. Das said.

He said the RBI will continue to improve the regulatory structure and supervisory rigour, as necessary, to promote the long-term resilience and stability of the financial system.



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