Reserve Bank of India Governor Shaktikanta Das said on Saturday that non-banking financial companies (NBFCs) need to ensure stronger governance structure for financial stability. Delivering the 39th Palkhivala Memorial Lecture, Das said, "A good governance structure will have to be supported by effective risk management, compliance and assurance mechanisms."
He said that the RBI is focussed on strengthening supervision of financial entities. Das said that it was imperative to identify the root causes of stress rather than addressing the symptoms. "This (ensuring good governance structure) constitutes the first line of defence on financial stability. An effective early warning system is necessary. Risk management in banks and NBFCs should evolve with changing technology and international best practices," Das said.
The RBI chief stressed the need for proper internal audit in banks and said that it is an important component to ensure financial stability of these institutions and the financial system.
Das said that the RBI would soon come out with guidelines for NBFCs and that the central bank was quick to address the stress in the financial system.
Talking about revival of the economy, Das said that recovery was visible and that banks would have a key role to play in ensuring support to the recovery. "At this juncture, we need to support economic revival and growth," Das said.
He added that banks would have to prepare for asset-quality issues post coronavirus. Das said that it would require capital requirement and noted that banks were raising capital already. Das highlighted the importance of tracking capital-raising processes to prepare for the post-coronavirus impact on balance sheets.