Banks must strengthen corporate governance and risk management practices, RBI report says

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Mumbai: The banking sector needs to strengthen corporate governance and risk management practices to deal with the uncertainties created by the coronavirus pandemic, the Reserve Bank said on Tuesday. With rapid technological advancements in the digital payments landscape and the emergence of new entrants into the FinTech ecosystem, banks would also be required to prioritize upgrading their IT infrastructure and improving customer service. , while strengthening their cybersecurity.

“Banks should strengthen their corporate governance practices and risk management strategies to strengthen their resilience in an increasingly dynamic and uncertain economic environment,” the RBI said in its report on “Industry Trend and Progress banking in India 2020-21 “. Although bank drawdowns remained subdued in an environment of risk aversion and moderate demand conditions in 2020-21, a recovery began in the second quarter of 2021-2022 as the economy emerged from the shadows of the second wave of COVID -19. “Going forward, the recovery of bank balance sheets depends on overall economic growth which depends on progress on the pandemic front,” he said. However, banks should further strengthen their capital positions to absorb potential slippages as well as to support the flow of credit. In summary, the report states that “India’s financial sector stands at a crossroads: While the immediate impact of the COVID-19 fallout will dominate in the near term, the greater challenges of climate change and technological innovations will require a carefully crafted approach. strategy. ”The Reserve Bank stressed that it will strive to ensure a safe, healthy and competitive financial system through its regulatory and supervisory initiatives.

During the period 2020-2021, the size of the consolidated balance sheet of programmed commercial banks (BSCs) increased, despite the pandemic and the resulting contraction in economic activity. In 2021-2022 so far, nascent signs of recovery are visible in credit growth. Deposits rose 10.1% at the end of September 2021 from 11% a year ago, according to the report. “The gross non-performing assets (GNPA) ratio of SCBs fell from 8.2% at the end of March 2020 to 7.3% at the end of March 2021 and to 6.9% at the end of September 2021,” the report states.

Regarding the recapitalization requirements after COVID-19, the RBI said that based on the capital situation as of September 30, 2021, all public and private sector banks keep the capital conservation buffer (CCB) well above 2.5%. “Going forward, however, banks would need a higher capital cushion to cope with the challenges due to continued stress on borrowers as well as to meet the economy’s potential credit needs,” he said. he declared. The umbrella bank also stressed that concerted strategies for the timely injection of capital should be pursued by banks. In addition, the banking sector should provide adequate buffers and remain vigilant to emerging risks as the economy recedes. recovering from the impact of the COVID-19 pandemic.

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