Reserve Bank of India Governor Shaktikanta Das on Friday gave a thumbs up to the country’s banking system, while stressing how recent developments in the US have brought to the fore the criticality of banking sector regulation and supervision.

“What we have in India today is a well-regulated and well-supervised banking sector. The same would apply to the NBFCs sector and other financial entities under the RBI’s domain,” he said while delivering the K.P. Hormis Commemorative Lecture here.

Hormis was the founder of the Kerala-headquartered Federal Bank.

Das pointed out that the focus is now more on identifying the root cause of vulnerabilities, rather than dealing with the symptoms alone.

“We have also issued revised guidelines on oversight and assurance functions of financial entities. Use of advanced data analytics is supplementing our supervisory process. To strengthen cyber resilience, a comprehensive cyber security framework for banks together with Digital Payment Security Control Guidelines have been issued. We have also established the college of supervisors and augmented the staff strength significantly in recent years,” he said.

Das focussed on how the recent developments in the US banking system have brought to the fore the criticality of banking sector regulation and supervision.

“These are areas which have significant impact on preserving financial stability of every country. More specifically, these developments in the US drive home the importance of ensuring prudent asset liability management, robust risk management, and sustainable growth in liabilities and assets; undertaking periodic stress tests; and building up capital buffers for any unanticipated future stress.

“They also bring out that crypto currencies/assets or the like, can be a real danger to banks, whether directly or indirectly,” he said.

“The Reserve Bank has taken necessary steps in all these areas. The regulation and supervision of the financial sector and the regulated entities have been suitably strengthened. The regulatory steps include, among other things, the implementation of leverage ratio (June 2019), large exposures framework (June 2019), guidelines on governance in commercial banks (April 2021), guidelines on securitisation of standard assets (September 2021), scale-based regulatory (SBR) framework for NBFCs (October 2021), revised regulatory framework for microfinance (April 2022), Revised regulatory framework (July 2022) for Urban Cooperative Banks (UCBs) and guidelines on digital lending (September 2022),” Das added.

On India’s G20 presidency, Das pointed out that this has come at a time when the country has once again emerged as the fastest growing major economy in the world.

“International confidence on India’s capacity to contribute constructively to reshape the global economic order is rising. The risk of a hard landing has dissipated world over, even as the pace of disinflation remains less than desirable. Before the cascading effects of geo-economic fragmentation further dampen the global outlook, rebuilding trust through cooperation and recommitting to multilateral frameworks for addressing critical global challenges has become essential,” he said.