The Indian banking system does not yet have a systemic approach to managing risk, said the Reserve Bank of India Deputy Governor K. C. Chakrabarty on Monday.
Speaking on risk-based supervision in Indian banking at a meeting organised by the Bankers’ Club, Dr. Chakrabarty said that the global financial crisis had shown that banks that were doing well were also the ones that bore greater risk. “After the global crisis, there is no such thing as risk-free returns, only returns-free risk,” he said. “The focus area, from a supervisory perspective, should be to identify institutions that are bearing greater risk,” he said. He said the stress posed by “restructured assets at a time of slow growth” was an obvious source of risk to banks. “NPAs are already a problem, but more is to come,” he warned.
Dr. Chakrabarty said Indian banks’ MIS (Management Information System) was inadequate to gather evidence on the extent of potential risk that they bear. “A good MIS system is a prerequisite for doing a proper risk-based assessment,” he said. He said Indian banks, and some extent the regulator too, had “little clarity” on some issues, which could be a potential source of risks.
The Indian banking system had not yet “established risk-return trade-offs,” said Dr. Chakrabarty.