The banking sector is required to strengthen corporate governance and risk management methods to handle the uncertainties developed due to the coronavirus pandemic, the Reserve Bank announced on Tuesday. Through rapid technological advancements in the digital payments landscape and the emergence of recent entrants across the FinTech ecosystem, banks would also be compelled to prioritize boosting their IT infrastructure and enhancing customer services, together with intensifying their cybersecurity. The RBI explained in its report on ‘Trend and Progress of Banking in India 2020-21 that, “Banks would need to enhance their corporate governance practices and risk management strategies to build resilience in an increasingly dynamic and uncertain economic environment.” Moreover, it stated that although credit offtake by banks continued to be restrained in an environment of risk aversion and muted demand conditions during 2020-21, an increase started in the second quarter of 2021-22, with the economy appearing out of the shadows of the second wave of COVID-19.
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“Going forward, revival in bank balance sheets hinges around all-around economic growth which is contingent on progress on the pandemic front,” it stated. Nevertheless, banks would be required to further bolster their capital positions to assimilate potential slippages as well as to maintain the credit flow. To summarize, the report stated, “the Indian financial sector is at a crossroads: while the immediate impact of the fallout of COVID-19 will dominate the short-term, larger challenges relating to climate change and technological innovations will need a carefully crafted strategy”. The Reserve Bank emphasized it will attempt to assure a safe, sound, and competitive financial system through its regulatory and supervisory endeavors. During 2020-21, the consolidated balance sheet of scheduled commercial banks (SCBs) broadened in size, notwithstanding the pandemic and the consequent reduction in economic activity. In 2021-22 so far, developing signs of recovery are noticeable in credit growth.
