Boards must be cognizant of build-up of concentrations in their business model says RBI Governor

Shaktikanta Das, Governor, Reserve Bank of India, delivered a Keynote Address at the Conference of Directors of Private Sector Banks today. He noted that the Indian banking sector is transitioning through a time which is replete with opportunities as well as risks and challenges. The banking sector remains strong and stable though factors like technological advancements, the rise of new-age fintech entities, third-party dependencies and climate change are reshaping the economic landscape.
Boards may adopt a proactive approach in identifying and addressing potential challenges. This necessitates clear understanding of both the external conditions as well as the internal currents within the organisation. Boards must be cognizant of build-up of concentrations in their business model. Excessive reliance on specific sectors, markets, or customer segments can expose the bank to amplified risks, particularly in times of economic stress or industry shifts.Boards can also play a proactive role by regularly monitoring the bank's portfolios, identifying potential areas of over-concentration, and taking pre-emptive steps to maintain a balanced approach.
Das noted that the Boards must also remain vigilant to operational risks, particularly those arising from IT outsourcing and reliance on third-party vendors. As banks increasingly depend on external service providers for key operations, the potential for disruption grows, especially when coupled with vulnerabilities, if any, in cybersecurity. A well-functioning Board of Directors with proactive oversight of governance, supported by robust assurance functions and policies built around customer centricity, is what sets a resilient and agile bank apart from an ordinary one, he opined.

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