“Our principal objective during this pandemic period was to support economic activity; and looking back, it is evident that our policies have helped in easing the severity of the economic impact of the pandemic,” Governor Das said at the Palkhivala Memorial Lecture. “I would like to unambiguously reiterate that the Reserve Bank remains steadfast to take any further measures, as may be necessary, while at the same time remaining fully committed to maintaining financial stability.”
Since the onslaught of the pandemic the regulator has taken several measures to mitigate risks and ensure financial stability by nudging banks to conduct internal stress tests, raise capital to better shock buffers, significantly ease financing conditions and allow banks to recast assets stressed due to the pandemic.
Governor Das also added that the regulator would soon issue a discussion paper on a scale-based regulation of non-banking finance companies that would focus on all NBFCs, irrespective of their size.
“The discussion paper on scale-based regulation for NBFCs is almost ready and will come out in next few days, perhaps in the next week, he said.
“The focus is to nurture the sector,m that is the big as well as the small entities, have sufficient flexibility to operate and grow. At the same time, the focus will be on prescribing certain prudential regulations.”
Das also said that the regulator is focussed on strengthening supervision of financial entities, and a significant part of that supervision was to identify the root causes of stress rather than addressing the symptoms.
Governor Das also reiterated the need for strong internal audit systems at banks and that it was an important component to ensure financial stability.
“This (good governance structure) constitutes the first line of defence on financial stability,” he said. “An effective early warning system is necessary. Risk management in banks and NBFCs should evolve with changing technology and international best practices.”