The Reserve Bank of India (RBI) governor Shaktikanta Das on Friday said Indian banking system is on the cusp of a transformation.

Speaking at the 9th Vibrant Gujarat Global Summit in Gandhinagar, Das said recent data suggests incipient signs of improvement in asset quality of banks.

India in recent years has emerged as one of the most vibrant economies in the world, said Das.

On the crisis in Non-Banking Finanacial Companies crisis, Das said NBFCs have been growing robustly providing an alternative source of funds to commercial sector.

Here are the key highlights of his speech.

Challenges And Outlook

Likely that growth will be more sustainable now, propelled by investment and private consumption.

Investment activity is expected to strengthen further as the benefits of recent structural reforms begin to materialise.

Going forward, the foremost priority is to preserve domestic macroeconomic and financial stability.

Downward risks to global growth, trade and investment have risen.

Spillover effects on emerging markets due to increase in global interest rates could also be profound.

Need to brace ourselves for any sudden bout of global financial market turbulence that domestic economy, financial markets may face going ahead.

Key Policy Challenges

Inflation in food, fuel, and inflation excluding food and fuel exhibiting wide divergences this year.

Wide divergences, large volatilities in inflation across major groups pose challenges for inflation assessment.

Need for continued vigil on asset quality of banks as well as resolution of stressed assets.

Will remain critical to ensure that further slippages are contained.

Cyber risk is a major challenge.

Formulation of comprehensive cyber risk & resilience policies and diligent implementation is critical.

Corporate governance in banks requires policy action with a focus on transparency and accountability.

Close monitoring of external sector required, given sharp movements in global crude oil prices and global financial market volatility.

Indian companies, policy makers need to re-strategise to respond appropriately to Brexit.

External Sector

India’s external sector has remained resilient in recent period despite terms of trade losses.

There has been global portfolio rebalancing away from EMEs, including India with global monetary policy normalisation.

Brexit will cause policy challenges for India which enjoys strong trade and investment relations with UK and the EU.

Will carefully weigh the challenges and opportunities that lie ahead and undertake appropriate policy responses.

Financial Sector

NBFCs have been growing robustly in recent years, providing an alternative source of funds to the commercial sector.

NBFC sector has faced challenging times recently.

Debt default of a systemically important NBFC highlighted vulnerability, need for strengthening regulatory vigil on NBFCs.

RBI intends to strengthen the ALM framework for NBFCs and harmonise it across different categories of NBFCs.

Banking Industry

The Indian banking system is on the cusp of a transformation.

Recent data suggests incipient signs of improvement in asset quality of banks

As per RBI’s current assessment, gross NPA ratio may further improve to 10.3% by March 2019

Bank credit is recovering from the risk aversion of recent years

Bank intermediation in the flow of resources to the commercial sector is regaining lost ground.

Incidence of financial frauds further underscores the significance of sound corporate governance standards in banks

Govt, RBI & BBB currently engaged in developing an objective framework for performance evaluation which should redefine the contours of PBSs’ corporate governance

New resolution framework with IBC as lynchpin and RBI’s regulatory framework as facilitator is a game changer

Progress of IBC framework so far has been encouraging, resulted in better recovery compared to earlier mechanisms

Data available till January 3, 2019 suggest resolution processes have been approved in 66 cases, involving around Rs 800 billion as resolution value to creditors.

Macro

India in recent years has emerged as one of the most vibrant economies in the world.

India’s growth story is backed by strong domestic fundamentals.

First Published:Jan 18, 2019 9:12 PM IST