Deputy Governor Swaminathan J. charts path to financial resilience at 10th SBI Banking and Economic Conclave

Mumbai (Maharashtra) [India], December 28 : In an address at the 10th SBI Banking and Economic Conclave, Deputy Governor Swaminathan J. of the Reserve Bank of India (RBI) meticulously outlined a roadmap for building financial resilience in India amid global economic uncertainties.
The event, graced by industry leaders, policymakers, and economists, provided a platform for deep insights and discussions on the challenges facing the banking sector.
Commencing with greetings to Chairman Dinesh Khara and attendees, Deputy Governor Swaminathan J. expressed his delight at being part of the event.
DG Swaminathan said, "As mentioned by Governor, RBI, Shaktikanta Das in the recent post-Monetary Policy Press Conference, the years 2020 to 2023 will perhaps go down in history as a period of 'Great Volatility '1. The global economy today is witnessing a renewed phase of turbulence with fresh headwinds from the banking sector turmoil in some advanced economies. A few bank failures and its contagion risk have brought financial stability and resilience issues to the fore again. Therefore, the theme of this year's conclave 'Building resilient brand India amidst global uncertainty' is highly topical in the current economic scenario".
He highlighted the conclave's significance as a forum for addressing pertinent issues, sharing insights, and collaboratively exploring solutions. His gratitude was extended to Chairman Khara for the invitation.
Swaminathan J. set the tone by contextualizing the years 2020 to 2023 as a period of 'Great Volatility,' a term coined by RBI Governor Shaktikanta Das. Against the backdrop of global economic turbulence, he emphasized the current conclave theme, "Building resilient brand India amidst global uncertainty."
Delving into the concept of 'brand India' from a banking lens, the Deputy Governor detailed the multifaceted components, including financial stability, risk management, crisis preparedness, corporate governance, adaptive regulation, robust supervision, financial inclusion, and customer protection.
Swaminathan said, "Today, as compared to the situation five years ago, the Indian banking sector stands tall, reflecting its strength and viability. As of September 2023, the Capital to Risk-Weighted Assets Ratio of Scheduled Commercial Banks stood impressively at 16.79 per cent, underscoring the sector's resilience. The Gross Non-Performing Assets (GNPA) at 3.25 per cent were at a decadal low with Net NPAs at 0.76 per cent".
He added, "The uptrend in profitability has continued into its fourth consecutive year with Return on Assets at a healthy 1.3 per cent and Return on Equity at 12.5 per cent. As compared to 2018 when 12 banks were placed under the Prompt Corrective Action (PCA) framework, today no SCB is under PCA".
Painting a positive picture, Swaminathan J. presented a snapshot of the Indian banking sector's current robustness. Key metrics, such as the Capital to Risk-Weighted Assets Ratio standing at an impressive 16.79 per cent, record-low Gross Non-Performing Assets (GNPA) at 3.25 per cent, and sustained profitability trends, showcasing the sector's resilience.
While acknowledging the present strength, the Deputy Governor stressed the need for an unwavering commitment to sound financial practices, prudent risk management, transparency, ethics, and the continuous upholding of elevated standards. He outlined six crucial aspects for banks to embrace in the upcoming period.
Swaminathan J. spotlighted the importance of effective interest rate risk management. He discussed recent regulatory changes providing banks with greater flexibility but cautioned against complacency, especially in the face of potential interest rate reversals.
He said, "Effective management of interest rate risk is a crucial aspect of prudent banking. Recent regulatory changes, notably, the symmetrical treatment of fair value gains and losses as well as removing restrictions on HTM have given banks greater flexibility in managing this risk in their investment portfolios. However, considering the dynamic nature of the interest rate risk, banks must proactively manage and mitigate this risk".
Reflecting on recent global events, the Deputy Governor underscored the need for banks to remain alert to risks inherent in their business models. He acknowledged the growing collaboration between banks, Non-Banking Financial Companies (NBFC), and FinTechs, emphasizing the cautious adoption of model-based lending through analytics.
Swaminathan said, "The growing collaboration between banks, NBFCs, and FinTechs is driving innovation in products, services, and business models. An important consideration is the cautious adoption of model-based lending through analytics. Banks and NBFCs should exercise caution in relying solely on preset algorithms, ensuring that these models are robust, regularly tested, and recalibrated as needed to maintain robust underwriting standards".
In the era of increasing digitalization, Swaminathan J. highlighted the imperative for banks to ensure the uninterrupted availability of online and mobile banking channels. He addressed incidents of unscheduled downtimes and urged banks to proactively commit resources for augmenting IT infrastructure.
The Deputy Governor emphasized the advantages of outsourcing but cautioned against the associated risks. He highlighted the importance of climate considerations, especially in a country like India vulnerable to climate change, urging banks to manage climate-related financial risks.
In a poignant segment, Swaminathan J. underscored the integral role of customer protection in building a resilient brand in India. He urged banks to proactively address customer grievances, emphasizing the foundation of trust and reliability.
Before concluding, Swaminathan J. reflected on the pivotal role of regulation and supervision. He detailed recent initiatives to make regulations more principle-based and underscored a proactive and preventive supervisory approach.
In a resonating conclusion, the Deputy Governor stressed the collaborative effort needed from financial institutions, regulatory bodies, government, and stakeholders. He envisioned this effort establishing a foundation of strength, stability, and adaptability, positioning India as a dynamic and resilient player in the global economic landscape.
Swaminathan said, "As the RBI has time and again reiterated, outsourcing does not absolve a bank of any of its obligations and they continue to remain ultimately responsible for the activities of their service providers including recovery agents. Banks must ensure that their service providers employ the same high standard of care in performing the services as would be employed by the banks. Banks should not engage in any outsourcing that may result in their internal control, business conduct or reputation being compromised or weakened".
Expressing gratitude once again, Swaminathan J. commended the organizers for a well-coordinated event. He expressed confidence that the conclave's deliberations would result in significant value addition to the participants.
Deputy Governor Swaminathan J.'s address not only illuminated the current state of India's banking sector but also provided a comprehensive roadmap for navigating the intricate terrain of global economic uncertainties, leaving the audience with a sense of purpose and direction.
The 10th SBI Banking and Economic Conclave stands as a testament to the collective resolve to fortify India's financial resilience on the global stage.