“India’s domestic financial system is now in a very strong position”: RBI Governor

Underlining the imperative of promoting a future-ready ethos in the financial sector, Das also emphasized the critical role of timely supervisory intervention in mitigating systemic risks.

The RBI governor said this in his inaugural address at the Global Conference on Financial Resilience organised by the College of Supervisors at the IGIDR campus in Mumbai.

He said, “India's domestic financial system is now in a much stronger position than it was before entering the COVID crisis period. The Indian financial system is now in a much stronger position, characterized by strong capital adequacy, low level of non-performing assets and healthy profitability of banks and non-banking lenders, i.e. NBFCs.”

He said, “I would like to commend the banks and other financial sector institutions for such a stellar performance in the year ended March 31. There is absolutely no room for complacency, because the world is changing, challenges are emerging, complexities are increasing, and problems can arise from any corner of the financial system within the country or the world, which have nothing to do with you and me…”

Governor Das referred to global banking failures, including in the United States, and the challenges faced by institutions like Credit Suisse, and emphasized the need to learn from such incidents.

He acknowledged the detailed analysis done by the US Federal Reserve on bank failures and stressed the importance of proactive regulatory measures to prevent crises.

Highlighting RBI's proactive approach, Governor Das cited the intervention in the Yes Bank crisis as evidence of the central bank's ability to address financial instability pre-emptively.

He pointed out the benefits of RBI's integrated approach in leveraging various aspects of banking operations for effective management of crises.

Discussing various sources of financial crises, Governor Das identified internal deficiencies within organisations, external factors such as climate change, technological disruptions, and unknown frauds as potential catalysts.

He stressed the need for supervisors to upgrade their methods and adapt them to changing stress scenarios over time.

Governor Das outlined RBI's recent supervisory initiatives, including reduction of unsecured lending and bank exposure to non-banking financial companies (NBFCs), aimed at preventing future risks.

“Fortunately, all stakeholders in India, namely the Reserve Bank, banks and non-banking financial companies (NBFCs) and the government have made concerted efforts in this direction. India's domestic financial system is now in a very strong position, characterised by robust capital adequacy, low level of non-performing assets and healthy profitability of banks and NBFCs,” Das said.

He stressed the importance of continued vigilance despite current regional stability, and urged financial institutions to embrace technological advancements while maintaining strong governance and ethical standards.

He highlighted the critical role of AI and machine learning in fraud prevention and operational efficiency, and emphasized the need for secure technology integration aligned with business goals.

“AI and ML can improve predictive analytics and enable banks and NBFCs to more accurately identify potential risks and trends. These technologies can also improve fraud detection by spotting unusual patterns and transactions in real-time. Thus, they can protect institutions and their customers from financial crimes and fraud,” Das said.

He added, “Operational efficiency can be improved through the automation of routine tasks, which reduces human error and frees up resources for more strategic activities. Robotic process automation (RPA) can handle high-volume and repetitive tasks, such as data entry and transaction processing, more quickly and accurately than humans.”

Looking ahead, Governor Das underlined RBI’s commitment to regulatory stability and emphasized a thematic and activity-based supervisory approach.

He highlighted RBI's efforts to set up an integrated supervision department and involve senior officials to promote closer cooperation with bank boards.

Governor Das expressed RBI's ambition to establish itself as a model for emerging economies, and advocated for a holistic, customer-centric regulatory framework on the occasion of RBI's centenary year.

Governor Das emphasised RBI's ongoing initiatives, including the creation of an Integrated Supervision Department and adopting unconventional methods to enhance regulatory effectiveness.

He highlighted the active engagement of senior officials at the Executive Director level with bank Boards to strengthen RBI's monitoring priorities.

Governor Das reiterated his vision for the RBI's centenary year, which aims to establish the institution as a benchmark for the global South through a holistic, customer-centric regulatory framework.

These initiatives underline RBI's commitment to enhancing financial resilience and maintaining high standards of governance in the dynamic global financial environment.