Jain who is incharge of the supervision, financial inclusion and consumer protection departments among others at the RBI said corporate governance is invariably the root cause of supervisory concerns.
Supervisors must closely examine the business models adopted by banks and meticulously assess whether these models align with the institutions’ risk appetite, he said.
“This evaluation should delve into the level of business growth projections, sustainability of earnings potential, extent of diversification, provisioning cover, and appropriate pricing mechanisms, etc,” Jain said.
He was delivering a speech at the The South East Asian Central Banks (SEACEN) Research and Training Centre conference of the directors of supervision in Mumbai.
Jain said banking supervisors play a crucial role in maintaining financial stability and safeguarding the interests of depositors and hence utilizing supervisory powers judiciously is of paramount importance. “To do so, it would be useful for supervisors to develop a formal escalation matrix for supervisory intervention that provides a structured approach for supervisors to determine the appropriate level of intervention and the corresponding actions to be taken,” he said.Compliance culture at the entire organisation level is also a critical area and supervisors must ascertain whether it permeates within the institution and gets support from the senior management of the entity.
He urged banking supervisors to use data to identify risks, and take timely actions to safeguard financial stability. “By leveraging the power of data analytics, banking supervisors can considerably strengthen their supervisory frameworks,” he said.
Supervisors must also strengthen their market intelligence capabilities through media inputs and also whistle blower complains which can be extremely useful in identifying emerging issues and valuable sources of market intelligence, he said.
Jain emphasised the need for capacity building through recruiting adequate number of quality staff and equipping them with the right skills and tools.
“By staying abreast of technological advancements, monitoring the evolving risk landscape, keeping pace with regulatory developments, building necessary capacities and skills and adopting latest analytical tools, supervisors can more effectively fulfil their role in maintaining financial stability, protecting consumers, and fostering a resilient banking sector,” Jain said.