The RBI has been urging banks to adopt effective risk management practices and strengthen their governance standards to avoid financial instability
The boards of Indian banks must pursue robust risk management strategies and emphasise compliance and effective governance while preparing for any potential risks, a deputy governor of the Reserve Bank of India said.
“Effective risk management, governance, and compliance practices are essential in safeguarding the bank’s reputation, financial stability, and long-term viability,” MK Jain said in a speech at the conference of directors of state-run and private banks on May 22 and May 29, respectively.
The RBI has been urging banks to adopt effective risk management practices and strengthen their governance standards to avoid financial instability.
Earlier this week, RBI Governor Shaktikanta Das, had flagged that it was a matter of concern that the central bank has come across gaps in governance at certain banks, which could lead to some volatility in the sector.
Effective governance requires a competent and independent board that oversees the management by asking pertinent questions and formulating appropriate strategies while keeping in mind the risk appetite, Jain said.
The deputy governor also sought banks to ensure that their actions comply with the intended purpose and principles of regulation and not just stick to the literal or technical interpretation.
Lenders should also take a long-term view of their business and consider the impact of decisions on their financial health, reputation, and broader societal and environmental factors, the deputy governor said.
Boards must remain vigilant, adaptive, and continuously assess the bank’s performance, risks, and opportunities, and take timely and informed decisions, he added.