RBI governor Shaktikanta Das asks banks & NBFCs to strengthen governance structure

Reserve Bank of India (RBI) governor Shaktikanta Das on Saturday reminded that banks and non-banking financial companies (NBFCs) need to strengthen the governance structure to ensure larger financial stability.  He said a recovery in the economy was visible and banks would have to play a role in ensuring support to the recovery and timely capitalisation of banks was important to prepare these institutions to support the economic recovery. “A good governance structure will have to supported by effective risk management, compliance and assurance mechanism,” he said.

While delivering the 39th Palkhivala Memorial Lecture the RBI governor said, "For a long time, there have been discussions on bad banks. We're open to any proposal regarding bad banks. It's for govt to come up with such proposal if any. If there's is any proposal on bad banks, RBI will examine it."

The RBI Governor also said,"This constitutes the first line of defence on financial stability. An effective early warning system is necessary. Risk management in banks and NBFCs should evolve with changing technology and international best practices,” Das said.

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'Regulated entities required to strengthen their internal defences'

Shaktikanta Das also explained the need for proper internal audit in banks as it is an important component in ensuring the financial stability of the larger financial system. Regulated entities need to strengthen their internal defences, the RBI chief said.

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The RBI played an important role in the reconstruction scheme of Yes Bank in March, last year by putting together a bailout plan headed by State Bank of India. The RBI also intervened in the issue of Lakshmi Vilas Bank by announcing a scheme to merge with DBS bank.

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(With Agency Inputs)