In a recent statement, Reserve Bank of India (RBI) governor Shaktikanta Das emphasized the importance of quality governance in financial entities such as banks and NBFCs. He highlighted the need for these institutions to prioritize governance and adhere to regulatory guidelines, as they operate with public money.
Das’s remarks come in the wake of recent actions taken by the RBI against financial institutions like JM Financial Products, IIFL Finance, and Paytm Payments Bank due to regulatory and governance lapses. Despite these challenges, key indicators of capital and asset quality of banks and NBFCs remain healthy, according to the latest RBI data.
The capital adequacy ratio (CRAR) and liquidity coverage ratio (LCR) of scheduled commercial banks (SCBs) are well above regulatory thresholds, with the CRAR ratio standing at 15.9% in December 2023. Additionally, the provision coverage ratio increased to 75.6%, and the LCR of SCBs was comfortable at 131.4%.
Vivek Iyer, partner at Grant Thornton Bharat, highlighted the importance of governance in managing financial stability risks, noting that past systemic risk issues have been a result of governance failures. The RBI has been engaging with regulated entities and stakeholders to simplify regulations and reduce compliance burdens, with over a thousand circulars already withdrawn as part of this effort.
Moving forward, the RBI will continue to follow a consultative approach and review regulations to adapt to the evolving financial landscape. The central bank’s focus on governance and regulatory compliance underscores its commitment to maintaining financial stability and protecting public funds.