The Reserve Bank of India (RBI) has introduced a comprehensive set of credit risk management guidelines aimed at strengthening the resilience and governance standards of commercial banks. The new framework seeks to improve how banks identify, assess, monitor, and mitigate credit risks across their portfolios amid growing economic complexity and evolving borrower profiles.
Under the revised norms, banks are required to adopt a more structured and forward-looking approach to credit risk assessment, integrating risk appetite statements with overall business strategies. The guidelines emphasize stronger board and senior management oversight, making leadership directly accountable for credit risk policies, portfolio quality, and adherence to prudential limits.
A key focus of the framework is enhanced stress testing and scenario analysis. Banks must regularly evaluate the impact of adverse economic conditions on credit exposures, sectoral concentrations, and large borrower accounts. The RBI has also called for improved early warning systems to detect signs of financial stress among borrowers at an early stage, allowing timely corrective action.
In addition, the framework strengthens internal controls around credit underwriting, exposure monitoring, and post-sanction supervision. Banks are expected to leverage data analytics and technology-driven tools to improve credit decision-making, monitoring accuracy, and reporting transparency. Greater alignment with capital adequacy requirements has also been emphasized to ensure that credit risks are adequately cushioned by capital buffers.
The RBI stated that these measures are intended to enhance financial stability, reduce the build-up of systemic risks, and ensure sustainable credit growth. Banks have been advised to review their existing credit risk frameworks and align them with the new guidelines within the prescribed timelines.
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