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Informist, Wednesday, Jun. 3, 2026

MUMBAI – Banks must become adaptable to risks whose timing, form, and transmission may be difficult to predict, Reserve Bank of India Deputy Governor Swaminathan J said while emphasising banking resilience in times of global crises. "Recent years have shown that shocks can arise from very different sources: pandemics, geopolitical tensions, supply chain disruptions, commodity price volatility, cyber incidents or sudden shifts in market sentiment," Swaminathan said at an event at Columbia University on Monday. "The task, therefore, is not only to prepare banks for known risks, but also to make them adaptable to risks whose timing, form and transmission may be difficult to predict."

According to the deputy governor, the Indian financial system has entered the uncertain phase with strength, including healthier balance sheets, comfortable capital buffers, improved profitability and non-performing assets at multi-decade lows. However, this is also the best time for banks and other regulated entities to build resilience as conditions are favourable. "Buffers, governance and risk discipline must be strengthened when growth is strong, asset quality appears comfortable, and risk appetite naturally rises. Resilience must, therefore, be built before it is tested," he said.

Swaminathan said that the next phase of banking resilience will be less about addressing known balance sheet stress and more about managing complexity and uncertainty. While technology can make banking faster, he said that it does not automatically make it wiser. "Artificial intelligence, cyber risk, third-party dependencies, climate-related risks and financial interconnectedness will therefore require ongoing attention from banks and supervisors," he said. 

According to him, RBI's supervisory approach has evolved to a more holistic, risk-based and forward-looking assessment of supervised entities and is no longer limited to entity-level compliance or inspection findings. However, supervision alone cannot build banking resilience, Swaminathan said. Banks' boards, senior management, risk management, compliance, internal audit and external audit departments must carry out their respective responsibilities. "Supervision can only act as an additional layer of oversight, but resilience must first be built within the institution," he said.

Modern supervision involves asking a wide range of questions and is not merely ensuring compliance with rules, Swaminathan also said. "It is about asking whether governance is effective, whether risks are understood and priced correctly, whether control functions have stature, whether customer conduct is fair, whether technology risks are managed, and whether the institution can continue to perform its core functions under stress," he said.

The deputy governor said that while retail credit, digital lending and microfinance have expanded access, they also need careful underwriting, fair recovery practices and close monitoring of borrower leverage. He said that in recent years, banks have moved towards more granular portfolios, better-rated corporate exposures, retail, small borrowers and other segments with clearer risk assessment, but these segments are not risk-free. "Retail and unsecured credit can create vulnerabilities of their own. However, a diversified and better-monitored portfolio is structurally different from one dominated by a few large, correlated exposures," he said. 

A strong bank warrants judgment, governance, accountability and institutions willing to learn in addition to capital and technology, the deputy governor said. "...resilience is not only about withstanding the last shock, but about building the capacity to respond well to the next one," he said. "Resilience is built through everyday decisions: what is financed, how risk is priced, how exceptions are approved, how early warnings are acted upon, how technology risks are governed and how accountability is enforced," he said.  End

Reported by Nandini Sinha

Edited by Deepshikha Bhardwaj and Akul Nishant Akhoury

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