India’s strong banking system is the cornerstone of its success on the global stage after it was pulled out of the depths it had fallen to due to bad loans, and the blow-up of one of the biggest non-banking finance companies, he said.
While the flexible inflation targeting provided the elbow room to address the supply side shocks, the regulator post Covid put together a mechanism to strengthen the institutions through prudential norms and heightened supervision and inspection, he said.
“We expect the senior management, the Board of Directors, the Audit and Risk Management Committees and the Internal Audit function in banks to play a more proactive role and be more watchful of incipient and emerging risks,” Das said at a financial industry conference in Mumbai.
Bad loans of Indian banks soared to 11% of advances and as many as 11 banks were put under the Prompt Corrective Action (PCA), curbing their ability to disburse funds. Infrastructure Leasing & Financial Services (IL&FS), meanwhile, blew up spectacularly, with more than Rs 1 lakh crore owed to creditors. The financial system has come a long way since, with bad loans at a decadal low of about 3% and all banks meeting capital norms.
“The remarkable turnaround in the Indian banking system has been the cornerstone of India’s success story in recent years. Today, the Indian banking system is well-placed to support India’s growth story in the years ahead,” Das said.He said that the trust on the banking and financial system that is built over a period of time through sustained efforts needs to be preserved.”The Reserve Bank has committed itself to safeguard the trust factor of the Indian financial system. Our recent efforts to improve regulation and supervision are guided by this basic principle,” Das said.
