Time right to address governance gaps in banking, says RBI deputy governor

New Delhi [India], June 5 (ANI): Deputy Governor at the Reserve Bank of India (RBI), Rajeshwar Rao, said that the time is right to address the gaps in governance frameworks in banks as the overall banking sector in India at the moment is sound, resilient, and financially healthy.

Rao made the remarks at the Conference of Directors of Banks organised by the Reserve Bank of India for both Public and Private sector banks recently.
“The banking sector in India at this juncture is sound, resilient, and financially healthy. So, the time is perhaps right to improve the plumbing by addressing the gaps in governance frameworks, assurance functions and strategise for better times ahead,” Rao said.

Taking the proverbial route, he added the time to fix the roof is while the sun is shining.

As India strives to become a developed country by 2047, financial institutions, Rao said, will need extraordinary amounts of financial resources to support growth to realise the country’s visions for a brighter tomorrow.

“Raising these resources would not be a constraint for financial intermediaries with robust governance frameworks as they can command a governance premium. It is important in this context to gain and retain the trust of other stakeholders such as depositors and various providers of financial resources. This is best ensured by strong governance, control, and assurance functions in financial institutions,” Rao said in the meeting, whose excerpts were made available by the RBI on Monday.

Earlier in May, RBI governor Shaktikanta Das said the central bank has come across gaps in corporate governance for certain banks and pointed out that it was necessary that Boards and the management do not allow such gaps to creep in since they have the potential to cause volatility in the overall banking sector.

Das had said a robust governance structure is the first and the most essential requirement for ensuring the bank’s stability and sustainable financial performance.

During his address to the bankers, Das added it is the joint responsibility of the Chairman of the Board and the Directors, both whole-time as well as non-executive or part-time Directors, to ensure robust governance in banks.

The talks about governance issues came at a time when there has been instability in some banks in the US.

One of the most prominent lenders in the world of technology startups, Silicon Valley Bank, which was struggling, first collapsed on March 10, after a run on the bank by the depositors. Its closure led to a contagion effect and the subsequent shutting down of other banks – Signature Bank and First Republic Bank. The collapse of a few regional banks in the US has sent ripples across the global banking industry and posed fears of a contagion effect across economies.