Examine if business models aligned with risk appetite: RBI's M K Jain

The Reserve Bank of India’s (RBI) deputy governor in-charge of supervision M K Jain said on Thursday that the regulatory supervisors must closely examine the business models adopted by banks and meticulously assess whether these models align with the institutions' risk appetite.

“This evaluation should delve into the level of business growth projections, sustainability of earnings potential, extent of diversification, provisioning cover, and appropriate pricing mechanisms,” Jain whose five year tenure as deputy governor ends this month said in a speech  at the SEACEN-FSI Conference of the Directors of Supervision of Asia Pacific Economies.

He also said that the supervisors need to examine IT issues holistically to determine whether banks have the capacity to develop robust IT systems that align with their business strategies.

“Future-proofing by banks of their IT infrastructure becomes imperative, necessitating strategic investments in both capital and operational expenditure. As virtual work environments and cyber risks become more prevalent, effective IT governance takes on heightened significance,” Jain said.

Emphasising on the importance of governance in regulated entities which is a root cause of supervisory concern, Jain said effective corporate governance and sound regulation go hand in hand, reinforcing each other.

“The recent bank failures in advanced economies have underscored the pressing need to address governance concerns head-on,” he added.