RBI Deputy Governor Urges NBFCs to Strengthen Risk Controls and Governance
Reserve Bank of India (RBI) Deputy Governor Swaminathan J has appealed to non-banking financial companies (NBFCs) to strengthen supervision of liquidity and credit risks, and underlined the importance of tighter board-level governance and sound internal controls. Speaking at a conference of NBFCs, Swaminathan cautioned that poor risk management would heighten systemic weaknesses in periods of market stress or liquidity shocks.
"Asset-liability mismatches, the nature and tenor of fund sources, and concentration risks need careful board-level attention backed by prudent internal frameworks", he said. His speech was released as a copy on the RBI website on Thursday.
He reiterated that NBFCs need to balance profitability and size with equity to customers, declaring, "Financial inclusion cannot be used as an alibi for financial exploitation".
Swaminathan also called on statutory auditors to raise the level of scrutiny over the effectiveness and adequacy of internal control mechanisms. His comments follow increasing worry over standards of governance in the wake of IndusInd Bank's announcement last month of a net worth depletion of 2.35% due to irregularities in derivative accounts.
The deputy governor pointed out that audit observations must trigger effective and prompt corrective actions and not only be recorded in meeting minutes. He demanded greater vigilance over sophisticated structures, derivatives, off-balance sheet exposures, related-party deals, and provisioning practices.
The RBI's approach is part of its ongoing efforts to enhance regulatory rigor and transparency in the financial system, especially in NBFCs assuming a critical role in credit distribution.
