<\/p>\n
RBI Measures to combat the Pandemic<\/strong> Das mentioned that \u201cPost containment of Covid, a very careful trajectory needs to be followed for orderly unwinding of the various counter-cyclical measures taken by the Reserve Bank and the financial sector should return to normal functioning without relying on the regulatory relaxations and other measures as the new norm.\u201d<\/p>\n Cause of Weak Banks<\/strong> Possible Remedies<\/strong> To combat fraudsters and cybercrime, he suggests that the \u201cbanks need to tighten their underwriting and credit monitoring standards and ensure that incidences of frauds are reduced by early detection and are followed up by initiating appropriate legal action against the fraudsters.\u201d He also laid emphasis on the compliance culture of banks, and said it should ensure adherence to laws, rules, regulations, and further, attempt to embrace broader standards of integrity and ethical conduct. <\/p>\n The Way Ahead<\/strong> He ended his speech on a hopeful note by quoting Leo Tolstoy\u2019s War and Peace: \u201ca battle is won by those who firmly resolve to win it!\u201d<\/p>\n<\/div>\n
In the wake of the pandemic, RBI announced various measures to ease the pressure on the banks and individuals. These include interest rate cuts, higher structural and durable liquidity, moratorium on debt servicing, asset classification standstill and a special resolution window within our Prudential Framework for Resolution of Stressed Assets. <\/p>\n
Das trances the causes of weak banks to one or more of the following conditions: an inappropriate business model given the business environment; quality or the lack of governance and decision making; misalignment of internal incentive structures with external shareholder or stakeholder interests and other factors. Accordingly, he states, \u201cthe core of resilient banks is made up of good governance, effective risk management and robust internal controls.\u201d Furthermore, he suggests the banks look out for \u2018sunrise\u2019 sectors like prospective business opportunities in the rural sector start-ups, renewables, logistics, value chains and other such potential areas, in order to earn its own bread alongside being a facilitator of economic growth.<\/p>\n
According to Das, the current steps towards consolidation of public sector banks in line with the Narasimham Committee recommendation is a step in the right direction. However, other measures must also be taken to maintain \u201cthe soundness of Indian banking system\u201d, like, the focus of use of technology should shift from \u2018transactions based\u2019 to \u2018business-oriented\u2019, reformation of the culture of governance and risk management systems.<\/p>\n
Das commended the Indian banking and financial system for displaying tremendous operational resilience in the face of Covid and added that, going ahead, they would have to \u201cwalk a tightrope of nurturing the recovery within the overarching objective of preserving long term stability of the financial system.\u201d RBI reiterated what it had already advised all banks: large non-deposit taking non-banking financial companies (NBFCs) and all deposit-taking NBFCs to assess the impact of coronavirus<\/a> on their balance sheet, asset quality, liquidity, profitability and capital adequacy. Based on the outcome of such stress testing, banks and NBFCs should work out possible mitigation measures including capital planning, capital raising, and contingency liquidity planning, among others. <\/p>\n