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RBI’s Financial Stability Report: Embracing Corporate Social Responsibility

A Channel for Positive Social Impact

The Reserve Bank of India (RBI) recently released its Financial Stability Report (2024), outlining the main objectives for regulating banks in India. Maintaining stability in financial markets, fostering economic growth by controlling inflation, and protecting customers in the digital era are key priorities.

The State of Indian Banking

The RBI reported that the Indian banking system is resilient, with strong operational performance, robust capital buffers, and improved asset quality as of September 2024. Banks play a vital role in the financial intermediation process, catering to the needs of the private sector and public finance requirements.

Maintaining Asset Quality

Despite a decline in the Gross Non-Performing Asset (GNPA) ratio from 9.60% in March 2017 to 2.60% in September 2024, banks still face challenges. Higher GNPA ratios are observed in sectors such as leather and leather products, agriculture, construction, food processing, and gems and jewelry.

Managing Risks

Banks face several risks, including liquidity risk, credit risk, concentration risk, interest rate risk, and exchange rate risks. However, operational risk has been a growing concern, with high attrition rates in Indian banks.

Leveraging Human Resources

Banks need to upgrade their human resources through constant training and capacity building to deliver superior customer service and maintain their competitive advantage.

Banking on Technology

Fintechs have gained popularity among customers, especially Generation Y and Z, who prefer digital platforms for various financial services. Banks must invest in advanced technology to ensure customer delight and protect stakeholders from cyber-crimes.

Commoditization of Financial Services

Banks should focus on creating value-added services to attract premium-paying customers, rather than competing for market share. This approach can lead to better profitability and Return on Assets and Return on Equity.

ESG Matrix

Climate change is a significant risk to global financial stability, and banks should encourage green finance and establish green branches and data centers.

Corporate Social Responsibility

Banks may view Corporate Social Responsibility as a channel for positive social impact, rather than a burden. They should also improve their corporate governance practices by appointing eminent directors to their boards.

Regulatory Compliance

Banks operate on the fiduciary trust of customers, and any failure to comply with regulations can result in heavy penalties. The RBI has robust capital adequacy and Common Equity Tier-1 Capital ratios for Scheduled Commercial Banks.

Conclusion

Banks must strengthen their risk management standards, develop competitive strategies, and adapt to changing demographics, technology, and market trends to be future-ready.

Published On: Feb 13, 2025 at 09:47 AM IST

Updated On: Feb 13, 2025 at 10:10 AM IST