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Informist, Thursday, Dec. 26, 2024

 

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--RBI report: Working on National Strategy for Fincl Inclusion for 2025-30 
--RBI report: High attrition, employee turnover in bks pose large ops risks 
--RBI report: Need closer look at linkage of bks, NBFCs with pvt credit cos 
--RBI report: Must monitor cos with very high ceilings on unsecured lending 
--RBI report:Bks need stronger risk mgmt norms against unscrupulous activity 
--RBI report: Some cos have fixed very high ceilings on unsecured lending 
--RBI report: Unsecured loans' delinquency levels, leverage need more vigil 
--RBI report: Banks need to strengthen risk mgmt standards, IT governance 
--RBI report: Some fall in credit growth post measures on unsecured loans 
--RBI report: To continue frequent, wide interactions with supervised cos 
--RBI report: Maintaining fincl stability overarching goal, to guide policies 
--RBI report: Committed to enable adoption of emerging technology 
--RBI report:To help develop infra for digital push in payments, settlements 
--RBI report: Banks, NBFCs aiding growth aspirations by meeting credit needs 
--RBI report: Macroprudential policies supported domestic economic activity 
--RBI report: Macroprudential policies enabled sustained credit growth 

 

NEW DELHI – There is a persistent need for banks to strengthen their risk management standards to check unscrupulous activities, including suspicious and unusual transactions, the Reserve Bank of India said in an annual report on Thursday. The report, titled 'Report on Trend and Progress of Banking in India 2023-24 (Apr-Mar)', also called for banks to beef up their information technology governance arrangements and customer onboarding and transaction monitoring systems to look into fraudulent activities. 

 

The report flagged that with the adoption of new technology, risks of cyberattacks, digital frauds, data breaches and operational failures in the banking system have increased. "New and emerging technologies are reshaping the banking industry by bringing in innovative solutions along with new challenges. Indian banks are at the forefront of digitalisation, aiming to leverage technology for productivity and efficiency gains," it said.

 

The report said that there has been some moderation in credit growth after the central bank's last year's measures to contain potentially excessive risk build-up from high credit growth in unsecured retail segments. However, delinquency levels and leverage in unsecured loans warrant enhanced vigilance, it said.

 

The RBI, in November 2023, increased the risk weight on exposure to consumer credit, including personal loans of commercial banks and non-banking finance companies, to 125% from 100%. The move made personal loans more expensive. The report also pointed out that some entities have fixed very high ceilings for unsecured lending, which need to be continuously monitored.

 

Further, the report called for a closer look at the interlinkages between regulated entities, including banks and non-banking financial companies, with private credit firms, saying that strong interrelationships between them could give rise to systemic concerns along with the possibility of regulatory arbitrage to circumvent regulations. 

 

"Traditionally, private credit firms raise resources from high-risk appetite investors to finance mid-sized companies — a segment which often faces challenges in getting finance from banks and public debt markets," it said. "Recent trends, however, indicate that the reach of private credit is expanding beyond mid-sized corporate borrowers, intensifying competition with banks in the syndicated loan markets." 

 

Highlighting that attrition rates are high across private and small finance banks, the report stated that high attrition and employee turnover rates pose significant operational risks, including disruption in customer service, loss of institutional knowledge and increased recruitment costs. Banks need to implement strategies like improved onboarding processes, providing extensive training and career development opportunities, mentorship programmes, competitive benefits, and a supportive workplace culture to build long-term employee engagement, it said.

 

The RBI will continue to carry out the frequent and wide interactions with supervised entities, including managing directors and chief executive officers, as well as board directors, the report said.

 

After taking multiple steps to promote acceptance of Indian payment instruments globally through initiatives like interlinking the unified payment interface, or UPI, with fast payment systems of other countries in the last few years, the central bank will continue to nurture and incentivise the development of infrastructure to give a digital push to payments and settlements, according to the report.

 

Moreover, the next iteration of the National Strategy for Financial Inclusion for the period 2025-30 is being developed based on wide-ranging stakeholder consultations and experience gathered during the implementation of the current strategy. "It (RBI) is also committed to playing an enabling role in the adoption of emerging technology, while reinforcing its customer-centric measures and deepening financial inclusion," it said. 

 

The report underlined that banks and NBFCs have provided support to the country's growth aspirations by meeting the credit requirements of the productive sectors of the economy. "Macroprudential policies have assiduously nurtured the health parameters of the Indian banking system and non-banking financial companies in an environment of balancing innovations with safeguards to secure and preserve overall financial stability," the report said. "This has enabled financial entities to sustain credit growth and support domestic economic activity." The RBI's overarching goal of maintaining financial stability will continue to guide its regulatory and supervisory policies, it said. End

 

Reported by Pratiksha

Edited by Deepshikha Bhardwaj

 

 

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