On April 27, Reserve Bank of India (RBI) Governor Shaktikanta Das announced that the RBI is closely examining the business models of Indian lenders to prevent poor strategies from triggering a crisis.
He stated that deficiencies in a bank’s business model can sometimes create risks in certain parts of its balance sheet, which can blow up into a bigger crisis going forward.
He urged banks to continually assess financial risks, focus on building up adequate capital and liquidity buffers, and demonstrate adequacy of internal controls and loss absorption capacity to match the risks that their business models may generate.
The RBI is using data analytics, artificial intelligence, and machine learning tools to capture potential and emerging risks, identify outlier entities and vulnerable large exposures of banks, and to monitor liquidity positions closely. The RBI is also working to enhance organizational resilience within banks by strengthening governance and assurance functions. Finally, the advent of digital lending by non-banks and fintechs has led to the flagging of issues regarding fair practices and consumer protection, and the RBI’s comprehensive guidelines on digital lending released last year seek to address concerns.