RBI Governor warns banks of risks in the banking system

The RBI governor talked about topics relating to business model viability, outlier growth in personal loans, loyalty to co-lending policies, etc.

Contextual Importance:

RBI Governor Shaktikanta Das has cautioned banks against the accumulation of risks in the banking system, emphasizing the need for continued vigilance amidst a backdrop of increasing fraudulent practices and scams.

Directive to Banks:

During a meeting with bank CEOs, Das stressed the importance of avoiding complacency and urged banks to maintain heightened vigilance to mitigate risks.

Recent Incidents:

The governor’s warning comes in light of recent incidents such as the RBI’s directive to Bank of Baroda to suspend new customer recruitment through its digital banking application, BoB World, and discrepancies in UCO Bank’s IMPS services.

Risk Management Measures:

Das emphasized the necessity for banks to uphold robust risk management measures to address various challenges and vulnerabilities in the banking sector.

Key Concerns Addressed:

During the meeting, Das underscored several key concerns, including the viability of business models, disproportionate growth in personal loans, adherence to co-lending guidelines, exposure to the NBFC sector, liquidity risk management, IT and cyber security preparedness, operational resilience, digital fraud, and enhancement of the internal rating framework.

Encouragement for FinTech Initiatives:

Das also urged banks to actively engage in RBI’s FinTech initiatives and enhance their Digital Banking Units (DBUs) to bolster their technological capabilities and resilience in the face of evolving digital threats.

Conclusion:

The RBI’s proactive stance, as articulated by Governor Shaktikanta Das, underscores the imperative for banks to remain vigilant and proactive in addressing risks and challenges in the banking landscape, thereby safeguarding the stability and integrity of the financial system.