Das has highlighted the role of governance in private banks that can keep them within guide rails as the business environment changes. State-owned banks have their own set of governance issues that arise from their ownership pattern. Bankers’ pay is an effective tool to improve risk management, and both private and public sector banks need to work on this metric. Board oversight, too, must improve, but that faces a business-wide constraint of boardroom talent in the country. Corporate controls in banks acquire a special emphasis because they deal with public money. Das’ message is, macroprudential measures are in place and banks need to complement them with robust internal controls.
India has had a difficult journey to build a relatively stable banking industry that is cushioned against vulnerabilities erupting in mature economies. RBI now has greater confidence in monetary transmission after plugging regulatory arbitrage that allowed shadow banks leeway in asset-liability mismatch. Credit conditions are orderly in an environment of rising interest rates. This is key to ensuring the intended soft landing for the economy after an energy shock. The central bank is issuing a timely warning about not repeating past mistakes with the economy poised for a credit-led investment surge. Das’ cautionary advice follows increasing central bank vigil for the better part of a decade. Banks should heed it.