Stop ‘mindless pursuit’ of profit: RBI Guv to banks

New Delhi: Reserve Bank of India Governor Shaktikanta Das on Thursday asked banks and non-banking financial companies (NBFCs) to desist from taking “unacceptable risks” in the pursuit of profit saying such business models contain vulnerabilities that may not be apparent.

“Pursuit of business growth is important, but it should never come at the expense of taking on unacceptable risks,” Das said while speaking at a conference organised by the College of Supervisors in Mumbai.

“Robust risk mitigants are essential for ensuring long-term success and resilience of a regulated entity as well as the overall financial system,” he added.

Das said the RBI has significantly strengthened its supervisory systems and has taken proactive measures to prevent crises. “We now look at sustainability of business models of banks and NBFCs. Root cause analysis of problems and vulnerabilities are undertaken. Advance action is initiated wherever we notice or smell a crisis,” he said.

Highlighting the importance of ethics in governance, the RBI Governor advised banks to avoid “mindless pursuit of bottom lines.”

The RBI Governor’s statement comes at a time when profits of Indian banks have hit a record high. The combined net profit of listed public and private sector banks crossed Rs 3 lakh crore for the first time during the financial year ending March 2024.

Das advised banks and other financial institutions to leverage emerging technologies like artificial intelligence (AI), machine learning (ML), and big data analytics for managing their risks.

“AI and ML can enhance predictive analytics and enable banks and NBFCs to identify potential risks and trends more accurately. These technologies can improve fraud detection by recognising unusual patterns and transactions in real-time. Thus, they can protect the institutions and their customers from financial crimes and frauds,” he said.

The governor further noted that operational efficiency can be improved through automation of routine tasks, which reduces human error and frees up resources for more strategic activities. Robotic process automation (RPA) can handle high-volume and repetitive tasks, such as data entry and transaction processing, more quickly and accurately than humans.