'Gradual turnaround in the banking sectors,' RBI Governor at Mint BFSI Summit | 14 key highlights

Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday delivered a keynote address at the Mint BFSI Summit in Mumbai.

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Here are key highlights of RBI Governor Shaktikanta Das' speech from Mint's BFSI Summit:

• During the last five years, the Reserve Bank took a series of initiatives on the regulatory and supervisory fronts, while banks, themselves, to their credit, responded to the challenges by strengthening their internal defence mechanisms. As a result of these concerted efforts, there has been a gradual and consistent turnaround in the banking system.

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• All key indicators of scheduled commercial banks (SCBs), namely, capital adequacy, asset quality, and profitability have shown improvement in the last four years.
• In the aftermath of the Infrastructure Leasing and Financial Services (IL&FS) crisis, the Reserve Bank heightened its focus on maintaining and fostering macro-financial stability through a series of conventional and non-conventional measures. The flexibility provided in the Flexible Inflation Targeting (FIT) framework of maintaining price stability, while keeping in mind the objective of growth, helped us to accommodate large supply-side shocks, while focusing on immediate growth concerns during the pandemic.
• When we envisaged that Covid-19 could be a major disruptive factor, our response was swift and decisive. A slew of measures was announced on March 27, 2020. They included targeted term repo operations (TLTROs) up to ₹1,00,000 crore, a reduction in the cash reserve ratio (CRR) by 1 percentage point and enhancement of access to marginal standing facility (MSF) by the banks. In parallel, all supervised entities (SEs) were advised in March 2020 to activate their existing operational and business continuity plans and manage the risks posed by the Covid-19 pandemic.
• In the recent period, the Reserve Bank has undertaken a complete overhaul of the regulatory architecture of the banking system. These regulatory steps include, among other things, the implementation of leverage ratio (June 2019; large exposures framework (June 2019); guidelines on appointment of directors and constitution of committees of the board (April 2021); revised guidelines on securitisation of standard assets and transfer of loan exposures.
• Post pandemic, digital lending has seen an exponential rise in various emerging economies including India. There has been an increase in scale and velocity of digital credit. At the same time, it has raised a host of business conduct issues.
• Our focus in recent years has been on strengthening the governance and assurance functions in the regulated entities – banks and non-bank financial companies (NBFCs) – to enhance their internal lines of defence.
• “I would not look at UPI as a monopoly. The success of UPI in a large measure also owes a lot to the private sector companies that have had a major role. UPI is perhaps the best in the world and should become a world leader”, RBI Governor said.

Four interesting things RBI Governor said on UPI at Mint BFSI Summit and Awards

• We expect the senior management, the Board of Directors, the Audit and Risk Management Committees and the Internal Audit function in banks to play a more proactive role and be more watchful of incipient and emerging risks.
• We have also addressed the issue of quick resolution of customer grievances by regulated entities. Accordingly, the Reserve Bank Integrated Ombudsman Scheme (RB-IOS) has been introduced and implemented.
• In order to facilitate development of a robust market in credit risk transfer and greater investor participation in stressed loans, the Reserve Bank has put in place a regulatory framework in the form of guidelines on ‘Securitisation of Standard Assets’ and ‘Transfer of Loan Exposures’ (2021).
• A unified and harmonized supervisory approach has been institutionalised in the Reserve Bank for commercial banks, NonBanking Financial Companies (NBFCs) and urban cooperative banks (UCBs). The emphasis is on identifying the root causes of vulnerabilities using a wide array of supervisory tools.
• Another area of our close attention is the cybersecurity risk. Although there are obvious benefits of adoption of IT in banking, the attendant risks need to be effectively addressed. Considering the diversification and complexity levels of our regulated and supervised entities, we have issued differentiated cybersecurity baseline control frameworks for the varied entities.

I don't think world, especially EMs, can afford a 'cryptomania', says RBI Guv

• RBI's position on cryptocurrency remains unchanged. Travelling down that path will create huge risks. The world & the emerging market economies cannot afford a crypto mania.