India's banking system resilient, safe, strong: RBI Governor Malhotra

RBI Governor says banking system remains resilient despite recent fraud cases, with no systemic risks seen and strong regulatory oversight in place

India’s banking system is resilient, safe, and strong, said Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday, adding, central-bank regulations related to conduct, governance, and prudence, along with its supervisory framework, helped keep it robust.

 

Malhotra’s comments came after fixed deposit-related frauds involving a few private-sector banks were found.

 

His remarks also gain significance in the context of the HDFC Bank episode, in which Atanu Chakraborty, as part-time chairman, resigned abruptly, citing certain developments that were incongruent with his values and ethics.

 

This has triggered commentary on governance at the bank although the RBI has denied any such concerns, stating that there were “no material concerns” on record regarding HDFC Bank’s conduct or governance.

 

 

The episodes that have come to light are bank-specific and are more in the nature of criminal incidents, Malhotra said at the post-monetary policy press meet. “While we have to be vigilant, the law-enforcement authorities will take care of these (incidents),” Malhotra said.

 

Deputy Governor Swaminathan J said, “These are entity-specific developments, and they do not pose any systemic risk at this point in time. As they play out, we deal with them on a bilateral basis. The banking system remains resilient, and we continue to focus on conduct- and governance-related matters. Banks are by and large run on professional lines. Any material supervisory concerns, as and when they arise, are dealt with on an event specific basis.”

 

If any regulatory tweak was required at a system level, “we are not averse to taking such measures but at this point in time there is no event which warrants a macro prudential measure or a regulatory tweak”, he added.

 

In late February, IDFC First Bank stated that it had detected, in a branch in Chandigarh, a ₹590 crore fraud pertaining to accounts related to the Haryana government. The issue came to light after a government department sought to close its account with the bank and transfer the funds to another lender. However, the amount mentioned by the department did not match the balance in the account. The bank has paid nearly ₹650 crore to the relevant departments of the Haryana government, and is working with the state authorities and law-enforcement agencies to pursue action against the perpetrators of the fraud and recover the dues.

 

AU Small Finance Bank also faced a similar situation pertaining to fixed deposits with the Haryana government.

 

In March, Kotak Mahindra Bank said it had filed a formal complaint with the Panchkula Police after an alleged fraud involving fixed deposits belonging to the Panchkula Municipal Corporation came to light, with the lender stating that it was undertaking a reconciliation of the deposits and linked accounts. The bank, however, has not quantified the amount.

 

Separately, the RBI said while there was no immediate stress, there could be pockets where it could emerge due to supply-chain disruption.

 

“… insofar as the banks, we are not seeing any systemic concerns with regard to their profitability and their health. Yes, there will be pockets or sectors that will be hit because of the present crisis (West Asia). The government has done a wonderful job in trying to secure these inputs and reduce supply-chain disruption. It will all depend on how long this continues,” Malhotra said.

 

“We have not seen any stress so far, but many companies are operating at a significantly reduced level, and some are even sharing capacity. This situation cannot continue for long. If it persists, they will eventually face problems, and asset quality will be impacted with a lag.” 

Word of assurance

• Several instances of fixed deposit-related frauds at private banks have come to light recently  
• RBI Governor says these episodes are bank-specific and do not pose any systemic risk at this point
• Deputy Governor Swaminathan says RBI is not averse to making any regulatory tweak at system level if needed
• RBI denies any immediate stress but supply-chain disruptions could lead to stress in some pockets