During his inaugural speech at the FIBAC 2023 Conference on Wednesday, Shaktikanta Das, the Governor of the Reserve Bank of India, articulated India’s journey through recent global challenges, emphasizing the nation’s resilience and adaptability. The conference, jointly organized by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Indian Banks Association (IBA) in Mumbai, served as a platform for industry leaders, bankers, and policymakers to deliberate on pressing issues and strategize for the future.
Das laid out a comprehensive vision for the Indian financial sector, with a particular emphasis on the banking system and Non-Banking Financial Companies (NBFCs). He highlighted the remarkable resilience demonstrated by the Indian banking system in recent times, buoyed by improved capital adequacy ratios and enhanced asset quality. He emphasized that while the Indian banking system has shown significant improvement in managing bad debts and NPA, there remains a need for vigilance and proactive management to prevent future crises. This includes careful credit expansion and fostering sustainable growth in various sectors.
Das acknowledged NBFCs’ critical role in the Indian financial landscape. NBFCs have been instrumental in providing credit to underserved sectors and have contributed significantly to financial inclusion. However, he also pointed out the need for responsible and transparent operations within these entities.
“The Reserve Bank of India has significantly strengthened its regulation and the supervision of banks, NBFCs and other regulated entities in recent years. We have also very recently announced a few macro prudential measures in the overall interest of sustainability. These measures are pre-emptive in nature. They are calibrated and targeted. It may be relevant to note that major growth drivers like loans for housing, vehicles and MSME sector have been excluded from these measures,” Das added.
He said the RBI will continue to focus on strengthening governance and assurance functions, ensuring effective risk management and robust lending practices. “We are monitoring the supervised entities through various onsite and off-site tools, stress testing, vulnerability assessments, thematic studies, data dump analysis, etc. as part of our proactive and forward-looking supervisory approach. Banks, NBFCs and other financial entities must continue to do stress testing of their books,” he said.
Caution against usurious rates
He urged microfinance institutions to adhere to transparent and reasonable interest rate practices. “As MFIs are catering to the marginalised clientele, they have to bear in mind the affordability and repayment capacity of the borrowers. Though the interest rates are deregulated, certain NBFCs-MFIs appear to be enjoying relatively higher net interest margins. It is indeed for micro finance lenders to ensure that the flexibility provided to them in setting interest rates is used judiciously. They are expected to ensure that interest rates are transparent and not usurious.”
