Recently Swaminathan J, RBI Deputy Governor has cautioned the Small Finance banks (SFBs) regarding various crucial matters related to Governance, Financial Inclusion, Risk Management, Cyber Security, etc.

Speaking at the conference of Directors of SFBs recently, he urged the countrys small finance banks to enhance governance for growth with sustainable development leadership practices.

“It is disheartening to come across egregious practices by some SFBs, such as charging excessive interest rates, collecting installments in advance as well as not adjusting such advance collections against loan outstanding, levying of usurious fees, etc. It is also observed that grievance redressal mechanism is far from adequate in most SFBs, said J Swaminathan. The entire speech was uploaded by the RBI official website.

RBI urges SFBs for governance policies

Further, the RBI urged the banks to enhance their governance policies to avoid risks and disruptions. These may lead to instabilities within the system.

It is the board’s role to provide oversight, ask the right questions, and hold the management accountable for executing the bank’s strategy within the agreed risk appetite, the deputy governor continued.

He said that boards of small finance banks should pay attention to proper management succession to avoid leadership issues that affect the management system. The Deputy Governor also pointed out that there are always likely to be some other hidden and emergent risks that may cause disruptions to the success of the bank in the long run.

He shared that these small bank lenders should also evaluate substantial asset exposures that would hugely impact them if they were to sour.

Swaminathan J encouraged the lenders to produce loans responsibly. This means that they should pay much attention to the right credit scoring.

He has also stressed the improvement in the IT sector to manage risks and threats that might hamper small finance banks. Swaminathan J said that many of the small finance banks had insufficient grievance redressal mechanisms.

Here are several key areas from Swaminathans speech:

• Management successiveness: To have proper and systematic arrangements to fill positions in top management to fend off leadership gaps and to keep up management frameworks.
• Risk Vigilance: Remaining vigilant befitting a strong apprehensive of obscured and new perils capable of undermining future gain.
• Deposit Dependence: Evaluating their ability to withstand shocks in high-cost term deposits from a limited set of institutions.
• Asset Exposure: Appraise significant credit risk that may be damaging the bank management
• Credit Risk: Fostering lending standards/proper credit underwriting so that credit extends appropriately
• IT Preparedness: Strengthening the banks IT segment and averting risks