Bank boards should ensure business models, strategy and operations are effective: RBI Deputy Governor Jain
Bank boards must ensure that the business model, strategy and operations are sustainable and create long-term value for all stakeholders, according to RBI Deputy Governor, MK Jain.
Effective risk management, governance and compliance practices are essential to protecting the Bank’s reputation, financial stability and long-term viability.
“…the board of directors must remain vigilant, adaptive, constantly assess the bank’s performance, risks and opportunities, and make informed and timely decisions,” Jin said in a recent speech at a conference of bank directors.
The Deputy Governor stressed that the role of the Board of Directors in ensuring sustainable growth and stability of the banking sector cannot be exaggerated.
As custodians of the interests of various stakeholders, including depositors, shareholders, regulators and the wider community, boards must adopt a proactive and strategic approach.
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To prepare for the future, Jain notes that Indian banks will need to focus on digital transformation, enhance customer experience, adopt innovative technologies such as artificial intelligence and blockchain, invest in cyber security measures, look for opportunities to reap synergistic benefits by collaborating with other players, as well as grow Its workforce skills to meet the demands of the digital age.
In addition, they will need to prioritize risk management, regulatory compliance and sustainability to ensure resilience and long-term competitiveness in an evolving banking landscape.
Supervision: Neither intrusive nor punitive
The Deputy Governor noted that supervisors often discover serious issues such as non-compliance, divergences from IRACP standards (income recognition, asset classification and provisioning), and gaps in internal controls and IT systems during their limited tenure at the Bank.
However, it is reported that these concerns often take managers by surprise when presented in off-site risk assessment and analytical reports.
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“Boards should consider why critical deficiencies are not noticed despite having access to relevant data and assessments, and work to build internal capacity to identify and address such issues at an early stage,” Jain said.
Noting that supervision is sometimes seen as intrusive, he made it clear that supervision is not designed to be intrusive or punitive, nor are supervisors the risk managers of supervised entities.
“We must recognize that supervision is only the fifth line of defense in banking, as it represents an additional layer of oversight beyond the traditional three lines of defense (business operations, risk and compliance management, and internal audit) and the fourth line of defense (external audit). He said that supervision is forced To intervene only when these lines fail.