RBI governor asks banks to stop 'unnecessary pursuit of profit'

RBI governor asks banks to stop 'unnecessary pursuit of profit'

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Mumbai: reserve Bank of India Governor Shaktikanta Das has urged banks to avoid “mindless pursuit of profit targets”. He pointed out that some profit-driven business models may have hidden vulnerabilities. He stressed that profitability should not come at the cost of managing these risks.
Speaking on keeping the financial system resilient and crisis-proof at an event organised by the College of Supervisors, Das said the RBI's endeavour is to detect crises before they escalate and take pre-emptive action.“I cannot say that we can anticipate every crisis at every opportunity, but we can do so on a best effort basis,” Das said.
Das highlighted that RBI's action to curb credit growth in unsecured loans and lending to NBFCs has resulted in a reduction in lending to these sectors. He said the central bank has also started taking unconventional measures, such as having an executive director of the central bank address the board of a regulated entity if it feels pressure is mounting on it.
The governor's statement has come at a time when Bank profits The sector's collective profit has crossed Rs 4 lakh crore and is at an all-time high. Market expectations of continued profit growth have pushed the Nifty Bank index to an all-time high.
The Governor explained RBI's proactive approach in the backdrop of global debate on whether regulators were behind the recent banking crises triggered by the Silicon Valley collapse in the US and Credit Suisse in Europe.
“In today's environment, which is marked by turbulent global trends and uncertainties, it is important for the financial sector to adopt an adaptive and forward-looking approach amid emerging challenges,” Das said.
Das said that RBI will correct it. Regulatory Architecture Reading supervision to promote the long-term resilience and stability of the financial system.
Das said stress in the financial system can arise from multiple sources. It can arise from internal factors such as deficiencies within a bank, financial entity or non-banking financial company (NBFC). Problems can arise from a minor issue on the balance sheet or in a financial institution, which management may ignore but can grow over time. Undetected fraud within these organisations can also cause significant stress.
External factors can also trigger Financial StressThese include climate-related issues, changes in business cycles, or incorrect monetary policies that do not reflect economic conditions. Technical failures or dependencies, such as IT system outages, can further contribute to financial instability. In a larger context, failures elsewhere can impact the financial entity, potentially leading to a crisis.

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