RBI tells urban cooperative banks to focus on keeping their house in order

MUMBAI: The Reserve Bank has asked the urban cooperative banks to identify and manage emerging risks as well as the changing dynamics of the traditional risks for which the internal control systems should be continuously updated and strengthened and warned them that the central bank will continue to follow its zero-tolerance policy towards poor governance practices.

Addressing a conference of the heads of assurance functions at urban co-operative banks, deputy governors M Rajeshwar Rao and Swaminathan J told the over 300 participants from over 120 urban cooperative banks that effective assurance functions play a crucial role in safeguarding the financial soundness of banks, as well as upholding the trust of their customers and other stakeholders.

The conference of the urban cooperative banks (UCBs) was the third in a series the monetary authority has been organizing. Earlier, they had addressed a similar audience from commercial banks and non-banks.

The assurance function professionals include the chief compliance officers, chief risk officers and heads of internal audit at banks, NBFCs and UCBs.

Addressing them Swaminathan outlined the Reserve Bank’s supervisory expectations and asserted that the regulator would continue to follow its zero-tolerance policy towards poor governance practices, if any, identified in UCBs in line with its overall approach to the financial sector.

The meeting was also attended by RBI executive directors SC Murmu, Saurav Sinha, Rohit Jain and Manoranjan Mishra along with other senior officials representing regulation, supervision and enforcement departments of the Reserve Bank.

Rao delineated the importance of the three assurance functions and the need for ensuring their efficacy and independence. Highlighting the rising competition from other players in the financial system, he exhorted chief risk officers to assist the management in monitoring and containing risks in banks balance sheets.

On Wednesday, addressing the same conference of NBFCs deputy governors Rajeshwar Rao and Swaminathan urged NBFCs to bolster governance and assurance functions and maintain constant vigil against potential risks and vulnerabilities.

“In the highly dynamic and challenging environment in which financial entities operate, they are exposed to a multitude of risks that can impact their financial and operational resilience so one needs to be mindful of the cyber security and operational risks; credit risks from rule-based credit models; and liquidity risks.

Rao outlined the transformative journey and progress witnessed in the Indian financial landscape, and contribution of NBFCs in last-mile credit delivery.