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RBI report: Banks need to strengthen corporate governance, focus on cyber security

With the rapid development of technology in the digital payment space and the entry of new players into the fintech ecosystem, banks need to prioritize their IT infrastructure and improve customer service, the RBI said.

RBI report: The Reserve Bank of India (RBI) on Tuesday said that the banking sector needs to strengthen corporate governance and risk management practices to address the uncertainty caused by the corona virus epidemic. With the rapid development of technology in the digital payments space and the entry of new players into the fintech ecosystem, banks need to prioritize their IT infrastructure and strengthen their cyber security by improving customer service.

“Banks need to strengthen their corporate governance practices and risk management strategies to develop resilience in an uncertain environment,” the RBI said in its report ‘Banking Trends and Progress in India 2020-21’.

The bank’s balance sheet will improve with the economic development

Although credit acceptance of banks was slow in 2020-21 under risk aversion and stable demand conditions, the economy accelerated as it emerged from the second wave of COVID-19 in the second quarter of 2021-22, the report said. “In the future, improvements in the balance sheets of banks will be linked to overall economic growth, which will depend on progress on the epidemic front,” the RBI said.

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The position of capital needs to be strengthened

However, banks need to strengthen their capital position to maintain the flow of credit while absorbing potential slippage. “India’s financial sector is at a stage where the effects of the Covid-19 collision will be visible in the short term, with a vigilant strategy to address major challenges related to climate change and technology development,” the report said. The Reserve Bank stressed that it would ensure a secure, good and competitive financial system through regulatory and supervisory initiatives.

The balance sheet has risen despite the recession

During the 2020-21 period, the size of SCB’s balance sheet increased despite epidemics and slowing economic activity. So far in 2021-22, there are early signs of recovery in credit growth. According to the RBI, deposits grew by 10.1 per cent at the end of September 2021, compared to 11 per cent a year earlier.

The gross non-performing assets (NPAs) of scheduled commercial banks (SCBs) fell to 7.3 percent at the end of March, 2021, from 8.2 percent at the end of March, 2020. At the same time, by September 2021, the gross NPA had dropped to 6.9 percent.

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