Banks and Non-Banking Financial Services Companies should tune their management strategies to face challenges from market risk, technology, consumer protection, and sustainability which are set to become the pillars of future financial sector regulations, RBI said.
The Indian financial sector has weathered the Covid storm and has emerged stronger with higher capital, better asset quality, and improved profitability, the RBI said in its Report on the Trends and Progress of Banking in India.
The Reserve Bank of India (RBI) has warned banks and non-banking financial companies (NBFCs) to be prepared for market risks and technological threats. In its Financial Stability Report, released on Thursday, RBI urged banks and NBFCs to strengthen their risk management systems, improve their capital adequacy and liquidity buffers and strengthen their governance frameworks.
The report also cautioned that “banks and NBFCs may face further stress in the near future due to the coronavirus pandemic, debt servicing problems, asset quality deterioration, and inadequate capital buffers”.
RBI suggested that banks and NBFCs should focus on enhancing their risk management systems, strengthening their governance and risk management processes, and improving the quality of their internal systems and controls. Additionally, banks and NBFCs should also consider their digital transformation strategies and address the risks associated with cyber-attacks.
In order to strengthen the capital adequacy of banks and NBFCs, RBI suggested that they should take proactive steps to raise capital and increase their capital buffers to ensure that they have sufficient capital to absorb any losses. The report also highlighted the need for banks and NBFCs to strengthen their liquidity risk management systems, including their liquidity buffers, to reduce the risk
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