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RBI Governor Shaktikanta Das has asked banks to proactively monitor their portfolios, identify areas of over-concentration, and take pre-emptive measures to address potential risks and challenges. He also asked bank boards to strengthen the internal governance framework to curb unethical practices, such as mis-selling of products or opening of accounts without proper KYC verification. He also said bank boards need to continuously assess external factors like regulatory changes, shifting market winds, overall macroeconomic changes and advances in technology.

The Governor further said boards should also be fully cognisant of the organisation’s internal strengths, vulnerabilities, and operational conditions so that they have a clear situational awareness. He stressed that 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 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.

Besides, he said the boards must also remain vigilant to operational risks, particularly those arising from IT outsourcing and reliance on third-party vendors. He also said that the incentives for bank staff should be carefully structured so as not to encourage them to indulge in unethical practices. While such practices may yield short-term gains, they ultimately expose the bank to significant long-term risks, including reputational damage, supervisory scrutiny, and financial penalties. He added that the Indian banking sector is transitioning through a time which is replete with opportunities as well as risks and challenges.