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Business News/ News / India/  ‘Preserving financial stability is top priority’

‘Preserving financial stability is top priority’

Das said RBI has strengthened its supervisory system over last two years

RBI Governor Shaktikanta Das (ANI Photo )Premium
RBI Governor Shaktikanta Das (ANI Photo )

Mumbai: Preserving financial stability and the interest of depositors are the biggest priorities for the Reserve Bank of India (RBI), governor Shaktikanta Das said on Friday.

This, he said, was evident in the swift resolution of two commercial banks, alluding to the rescue of Yes Bank and Lakshmi Vilas Bank (LVB). While Yes Bank was resolved by getting other lenders to invest in it, LVB was merged with the Indian unit of Singapore’s DBS Bank.

“We remain strongly committed to preserving the stability of the financial sector and will do whatever is necessary on this front," said Das.

The governor said the central bank is constantly focused on strengthening regulations and deepening its supervision, and financial sector entities like banks and non-banks (NBFCs) should also give the highest priority to the quality of governance, risk management and internal controls. “They are the first line of defence in matters relating to financial sector stability," he said.

Questions have been raised about RBI’s promptness in rescuing ailing lenders, considering capital concerns at LVB had been festering for a long while. Das told reporters that RBI first tries to nudge and request the lender to resolve the problem and intervenes only when it believes it is in the best interest of the depositors.

“In the two banks where we had to intervene and resolve, it is not as if they happened one fine morning and we were not aware of what was happening," said Das.

He explained that the central bank has, over the last two years, strengthened and deepened its supervisory system. The kind of deep dive and analysis that RBI is now doing, along with the depth of supervision that it has achieved, is something never seen before, said Das.

Asked about the resolution of Punjab & Maharashtra Cooperative (PMC) Bank pending for over a year, Das said that the case of the cooperative bank is completely different. “As you would be aware, the bank has called for expressions of interest (EoIs) for possible investors who would like to invest and take over the bank. The last date for receipt of EoIs and the information memorandum was 30 November, and the response looks positive at this point in time," said Das.

He added that RBI has focused on the resolution of stress among borrowers, and facilitated credit flow to the economy while ensuring financial stability in response to the covid-19 crisis. In a similar vein and to help banks conserve capital while creating room for fresh lending, RBI directed commercial and cooperative banks to retain profits and not make any dividend pay-out from the profits pertaining to the financial year 2019-20.

RBI has decided to put in place transparent criteria for NBFCs as per a matrix of parameters for declaration of dividends by different categories of NBFCs.

Anil Gupta, vice-president and sector head (financial sector ratings) at Icra Ltd, said that given the uncertainty on asset quality, curtailment of dividend for banks is a positive move from a capital conservation point of view. “Many larger NBFCs have continued to pay dividends in FY21 from profits of FY20, despite some of them raising capital in FY21. Proposal to converge rules for NBFC as well with objective to conserve capital is positive," said Gupta.

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Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 04 Dec 2020, 06:38 PM IST
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