Reserve Bank of India Deputy Governor Swaminathan J.
Credit: www.rbi.org.in
Incidents of unscheduled downtimes are inconveniencing customers, even as many banks are not spending their information technology (IT) budget fully, RBI deputy governor Swaminathan J said on Thursday.
“Recently, there have been a few incidents of unscheduled downtimes inconveniencing several customers. It is also observed that many banks have not been spending fully, the budget earmarked for procurement of IT systems and IT security systems,” Swaminathan said while addressing SBI Banking and Economic Conclave in Mumbai.
“Banks have to proactively commit adequate resources for augmenting their IT infrastructure, commensurate with their business plans and also monitor them for their continued availability and stability,” he added.
Swaminathan also raised concerns over growing interconnect between banks and non-banking finance companies (NBFCs).
“Banks and NBFCs should exercise caution in relying solely on preset algorithms, ensuring that these models are robust, regularly tested, and recalibrated as needed to maintain robust underwriting standards,” he said.
Flagging the rising tendency of banks to depend on bulk deposits, Swaminathan advised lenders to effectively manage interest rate risks.
“Increasing NIMs (net interest margins) that banks are presently enjoying may not be sustained in the future when the interest rate cycle reverses, whenever that happens in future,” he said.
External benchmark-linked loans will be repriced much faster than deposits contracted during the peak of the interest rate cycle resulting in pressure on NIMs and eventually profitability. Therefore, apart from interest rate risk in the trading book, banks must be mindful of the interest rate risk in the banking book as well, he added.
High policy rates have led to rise in net interest margins of banks that have also boosted their profitability.
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