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Monday, September 21, 2020

RBI Guv Shaktikanta Das: ‘Being overly risk-averse self-defeating for banks’

Pushing for more reforms in the banking sector, the RBI Governor said despite several reforms in the banking sector since its nationalisation, lot more needs to be done.

By: ENS Economic Bureau | Mumbai | Updated: August 28, 2020 10:43:54 am
shaktikanta das, rbi governor shaktikanta das, rbi governor shaktikanta das live, rbi governor shaktikanta das at unlock bfsi 2.0, rbi news, economy news, banking sector news, business news, indian express businessRBI Governor Shaktikanta Das. (File)

Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said the central bank has not exhausted its ammunition on rate cuts or policy actions and asked the banking sector to “earn its bread” by looking for business opportunities and relooking at the business strategy instead of remaining overly risk-averse.

Pushing for more reforms in the banking sector, the RBI Governor said despite several reforms in the banking sector since its nationalisation, lot more needs to be done. “Remaining overly risk-averse may seem to be a measure of self-immunisation … but will be self-defeating as it would affect the bottom lines adversely,” Das said.

While the RBI has cut repo rate by 115 basis points since February this year, credit growth has remained sluggish at 5.5 per cent. However, the central bank kept the rate unchanged at four per cent in the August policy review.

According to the Governor, the banking sector has a responsible role to play not only as a facilitator of growth of the economy but also to earn its own bread. “Thus, a complete relook at the business strategy and orientation is the immediate need of the hour,” he said at a banking conference organised by Business Standard.

He said banks need to look out for ‘sunrise’ sectors while supporting those which have the potential to bounce back. “They need to look at startups, renewables, logistics, value chains and other such potential areas,” Das said.

Explained

Sluggish credit growth

While the RBI has cut repo rate by 115 basis points since February this year, credit growth has remained sluggish at 5.5 per cent. However, the central bank kept the rate unchanged at four per cent in the August policy review.

“With change in time, the nature of reforms needs to be reconfigured. The current steps towards consolidation of public sector banks in line with the Narasimham Committee recommendation is a step in the right direction,” he said.

The Governor indicated that the measures taken by the RBI are intended to deal with the specific situation of Covid and can’t be permanent. “Post containment of Covid, a very careful trajectory needs to be followed for orderly unwinding of the various counter-cyclical measures taken by the RBI and the financial sector should return to normal functioning without relying on the regulatory relaxations and other measures as the new norm,” he said.

Das expressed concern over the inability to manage the operational risks, more particularly controlling the incidence of frauds, both cyber-related and otherwise.

“The higher incidence of frauds which have come to light in the recent times have their origins in not so efficient risk management capacity of the banks, both at the time of sanctioning of loans as well as in post sanction credit monitoring,” he said.

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