Governor Shaktikanta Das wants banks to improve corporate governance and risk standards

MUMBAI: The Reserve Bank of India governor Shaktikanta Das on Friday stressed on the need for banks and other financial institutions to improve their corporate governance and risk standards. In light of the recent system outages at HDFC Bank and State Bank of India the governor also said that all financial institutions should invest more in upgrading their IT infrastructure.
“If you want to remain competitive in the coming years, tech is the key, robustness of your IT system is the key,” Das said. “Banks, NBFCs and other financial entities need to invest more in tech and strengthen all their systems so that public confidence is maintained. Going forward the entire financial landscape will be IT-dependent.”

HDFC Bank faced a system failure on November 21 after a power outage in its data centre, forcing RBI to issue for the first time ever business sanctions on the bank. State Bank of India’s flagship YONO app too faced similar issues forcing customers to vent on social media. RBI said it was looking into the technical glitch caused at SBIs digital interface.

In light of the recent failures of two commercial banks the regulatory chief said that RBI's constant endeavour was to protect financial system stability.

“We remain strongly committed to preserve the stability of the financial sector and will do whatever is necessary on this front,” Das said. “While we are constantly focused on strengthening the regulations and deepening our supervision, financial sector entities like banks and NBFCs should also give highest priority to quality of governance, risk management and internal controls. They are the first line of defence in matters relating to financial sector stability.”

In March this year the regulator imposed a moratorium on Yes Bank and quickly stitched a reconstruction plan with SBI and nine other domestic entities investing in the lender. Likewise, last month the RBI directed a forced merger between troubled Lakshmi Vilas Bank and DBS (India) Bank, wiping out holdings of all equity and tier 2 bond holders.

To stress it’s point on heightened supervision RBI announced a series of measures to improve governance and assurance functions.

For the first time ever the regulator said it proposes to issue Digital Payment Security Controls which will contain requirements for robust governance, implementation and monitoring of certain minimum standards on common security controls for channels like internet and mobile banking and card payments.

“While the guidelines will be technology and platform agnostic, it will create an enhanced and enabling environment for customers to use digital payment products in more safe and secure manner,” RBI said.

The RBI also introduced risk based internal audit in large urban co-operative banks and non-bank lender’s and harmonise guidelines on appointment of Statutory Auditors to improve quality of financial reporting.