RBI Rao says harnessing tech, mitigating credit risk among focus areas
Informist, Tuesday, Apr 2, 2024
MUMBAI – Harnessing the benefits of technology for regulated entities, customer service, strong governance and compliance framework, and containing risks from pro-cyclicality in lending would be key focus areas for the central bank, Reserve Bank of India Deputy Governor Rajeshwar Rao has said. The aim is to build a stable and resilient financial system to meet the country's emerging needs effectively.
The banking and financial services industry will have to reorient its business models, processes, and products as customer preferences change, Rao said at an investment summit organised by Mint in Mumbai. "To cater to this change, the RBI has started its groundwork on enhanced use of technology in banking such as use cases of artificial intelligence, digital ledgers, and so on," he said.
The regulations should ensure customers are not misled by false promises and do not fall prey to unfair practices, Rao said. The regulator will be guided by the philosophy of "minimum regulatory expectations" but the regulated entities can adopt higher standards depending upon their size, proportionality and customer focus, he said.
The central bank wants to ensure continuous vigil to mitigate risks emerging in the financial ecosystem, Rao said. Uncontrolled credit growth coupled with laxity in credit discipline or underwriting standards could be harmful for the entity concerned, and could also snowball into systemic concerns, he said.
To avoid this, the RBI recently took certain quantitative and qualitative measures to curb credit offtake towards the consumer credit segment, and increasing dependence of non-banking finance companies on bank borrowings, Rao said. "Although asset quality at broader portfolio level was not exhibiting any major signs of stress, the consistent high credit growth reported in the above segments warranted regulatory intervention."
Amid an evolving financial landscape, underlying principles of good governance, robust risk management, effective compliance, customer protection, and responsible business conduct would be increasingly relevant, he said. "A robust culture within the organisation which delivers financial services while embracing these principles will stand the system and the institutions in good stead in the long run." End
