Banking resilience now hinges on adapting to new risks: DG Swaminathan

The RBI deputy governor said banks must prepare for emerging risks ranging from cyber threats and AI to geopolitical shocks and climate-related disruptions

The next phase of banking resilience would hinge less on cleaning up balance sheets and more on navigating an increasingly unpredictable global environment, where risks emerge rapidly and often without warning, Reserve Bank of India (RBI) Deputy Governor Swaminathan J said.

 

Recent years have shown that shocks could arise from “pandemics, geopolitical tensions, supply chain disruptions, commodity price volatility, cyber incidents or sudden shifts in market sentiment”, he said at the School of International and Public Affairs (SIPA) at Columbia University.

 

“The task, therefore, is not only to prepare banks for known risks, but also to make them adaptable to risks whose timing, form and transmission may be difficult to predict,” he said.

   

Swaminathan said retail credit, digital lending and microfinance had expanded access, but required “careful underwriting, fair recovery practices and close monitoring of borrower leverage”.

 

“Technology can make banking faster, but it does not automatically make it wiser,” he said. Artificial intelligence (AI), cyber risk, third-party dependencies, climate-related risks and financial interconnectedness would require “ongoing attention from banks and supervisors”.

 

“Banking resilience is not a fixed achievement. It is a continuing institutional project,” Swaminathan said, adding that India’s recent experience showed resilience was built through discipline across the balance sheet and beyond, transparent recognition of stress, balance sheet strengthening, calibrated and adaptive regulation, and responsible conduct within banks.

 

He said strong banks require capital and technology, but also judgment, governance, accountability and institutions that learn.

 

Speaking about India’s position amid global geopolitical uncertainty, he said the country today stands on a relatively strong macroeconomic footing.

 

“Even amid geopolitical uncertainty, supply-chain disruptions and volatile commodity conditions, domestic economic activity has shown resilience, supported by strength in industrial and services activity, broad-based demand and improving corporate performance,” he said.

 

He said inflation remained within the tolerance band and external vulnerabilities were manageable. The Indian financial system enters this uncertain phase with strength, reflected in healthier balance sheets, comfortable capital buffers, improved profitability and non-performing assets at multi-decade lows, he added.

 

While the position of strength was encouraging, Swaminathan cautioned that the best time to build resilience is when conditions are favourable.

 

“Central banks are sometimes seen as cautious voices in otherwise optimistic times, expected to ask difficult questions just when the party appears to be going well. In banking, that is often exactly the point,” he said.