RBI Governor Shaktikanta Das has called on banks to be cautious about chasing profits at the expense of risk management. Speaking at an event organized by the College of Supervisors, Das emphasized that the relentless pursuit of profits could lead to hidden risks within the financial system.
Governor Das highlighted that some business models focused solely on profits might contain unseen vulnerabilities. He stressed the importance of profitability, but not at the cost of managing these risks effectively. “Banks need to strike a balance between being profitable and being safe,” he said.
In his speech, Das talked about the Reserve Bank of India’s (RBI) role in keeping the financial system resilient and preventing crises. He mentioned that the RBI’s goal is to identify potential crises early and take preventive action. “We may not be able to detect every crisis in advance, but we strive to do so to the best of our ability,” Das explained.
Das highlighted the RBI’s proactive measures to control credit growth in certain high-risk areas. For example, the RBI’s actions to moderate lending in unsecured credit and to Non-Banking Financial Companies (NBFCs) have resulted in slower growth in these sectors. This was a deliberate move to prevent excessive risk-taking.
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The governor also shared that the RBI has adopted unconventional strategies to manage potential stress in the financial system. One such measure includes having an RBI executive director directly address the board of a regulated entity if signs of stress are detected. This approach goals to provide timely guidance and avert potential issues.
Record-breaking profits and market performance
The governor’s remarks come at a time when bank profits are soaring. The banking sector’s collective profits have surpassed Rs 4 lakh crore, driving the Nifty Bank Index to an all-time high. Market analysts have high expectations for continued profit growth in the sector.
Governor Das’s message to banks is crystal clear, while profitability is important, it should not compromise the stability and resilience of the financial system.
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