Reserve Bank of India governor Shaktikanta Das on Friday called on financial entities like the NBFCs, banks to be mindful of the fact that they are dealing with public money.
“Let me emphasize that banks, NBFCs and other financial entities must continue to give the highest priority to quality of governance and adherence to regulatory guidelines,” Das said.
“The financial sector players, in general, operate on public money – be it from depositors in banks and select NBFCs or investors in bonds and other financial instruments. They should always be mindful of this,” Das added.
The RBI has taken note of developing risks in the financial sector to mitigate few risks. Recently, the RBI has come down hard on fintech icon Paytm’s banking arm Paytm Payments Bank over non-compliance and oversight concerns. Reports say that certain accounts were created without proper identification, possibly for money laundering.
RBI also took action against IIFL Finance Ltd and JM Financial Products Ltd, asking them to cease and desist from issuing gold loans and loans against shares, respectively.
In December 2020, the RBI suspended HDFC Bank from serving new credit card customers following repeated technology outages.
Rating agency S&P Global Ratings said in a report that the central bank shows a serious commitment to improve governance and transparency in the sector. These actions by the RBI, it said, will curb the excessive exuberance of lenders, improve compliance culture and protect customers.
However, these measures will lead to higher capital costs for institutions.
“India’s regulator has underlined its commitment to strengthening the financial sector,” said S&P Global credit analyst Geeta Chugh. “But the increased regulatory risk could hinder growth and raise the cost of capital for financial institutions.”
According to S&P, the RBI has a decreasing tolerance for non-compliance, customer complaints, data privacy, governance, know your customer (KYC) and anti-money laundering.