Mumbai, With studies showing gains in asset quality and resilience to withstand stress scenarios, Reserve Bank Governor Shaktikanta Das on Thursday asked financial system stakeholders to assign “highest priority” to governance. “The highest priority must be assigned to governance – strong governance is at the core of resilience of stakeholders in the financial system,” the governor said in his foreword to the half-yearly Financial Stability Report published by the central bank.
The report highlights the strengthening of balance sheets of financial institutions with low levels of impairments, robust earnings and strong buffers, he said, adding that RBI stress tests show that even under severe stress scenarios, banks’ and non-banks’ buffers will remain above minimum regulatory capital levels.
“Today, the matrix of financial stability is perhaps at its best, but the real challenge is to maintain it and improve upon it further,” he noted.
In the “stable environment”, the RBI is watchful of emerging risks from cyber hazards, climate change and global spillovers, Das said.
He also asked banks to invest adequately on the technology front and affirmed the central bank’s commitment to promote innovation.
He also asked for customers’ interests to be put at the forefront, pointing out that preserving the trust of the customer is the cornerstone of safeguarding systemic stability.
Amid global headwinds, the Indian economy is exhibiting strength and resilience with strong macroeconomic fundamentals and buffers, Das noted.
He said economic activity is expanding at a steady pace with the financial system being stronger and more vibrant than what it was before the onset of the recent period of crises.
The RBI’s approach of balancing growth and stability with a willingness to take proactive and prudent actions to prevent the accumulation of risks is promoting “long-term resilience and stability of the financial system”, the governor added.
“It is vital that we consolidate these gains and nurture a financial system that is future-ready and supports the needs of India’s growing economy,” Das said, adding that with India’s contribution to global growth rising, there is a need for the financial system to deepen and modernise.
He said the risks of a hard landing for the global economy have abated, even though progress in disinflation has been slow.
In the foreword, the governor reiterated some of his concerns, stating that the “alarming levels” of public debt pose a major risk to the global financial system, along with frequent geopolitical conflicts, climate change and risks emanating from the adoption of financial technologies.
