The Reserve Bank of India (RBI) wants to ensure that the strong financial performance of banks and non-banking finance companies (NBFCs) does not camouflage certain basic governance deficiencies, said Governor Shaktikanta Das.

He observed that the financial numbers of the Indian banking and NBFCs (top 25 NBFCs, which represent 75-80 per cent of this sector) sectors at the moment are healthy and robust at the aggregate as well as at the individual entity level.

• Also read: India is emerging as global growth engine: RBI Governor

“Now, governance is something beyond these numbers. In the long run, these numbers ultimately stem from good governance. Therefore, our emphasis has been on good governance to ensure that the financial parameters achieved by banks and NBFCs over the last few years continue to improve further.

We want that underlying these numbers, certain basic deficiencies should not be camouflaged. And our analysis shows that what differentiates a good institution (bank or an NBFC) from a not-so-good one is governance,” Das said at a BFSI summit.

• Also read: RBI sure of India’s growth, but stresses on reforms sustaining

Within governance, RBI has broadly highlighted three components — robust risk management, compliance culture (including ethics), and the strength of internal audit.

“So, whenever we see any deficiencies/deviations/problems building up somewhere in any particular entity, our job is to immediately flag the issue with the entity.

We don’t want to hit big headlines by making statements that such and such a bank has a problem because sometimes in the public mind/perception, the interpretation may be disproportionately high compared to the actual nature of governance deficiency, thereby unnecessarily creating a crisis of confidence,” the Governor said.

• Also read: RBI flags governance gaps, attempts to conceal stressed assets 

He emphasised that when RBI internally takes up the issue of deficiency with a bank/NBFC, it quantifies it and directs the particular entity to take necessary corrective measures, which they do.

Das noted that RBI’s Cyber Security and Information Technology Examination Cell is doing a thorough inspection of the quality of the IT systems in banks and what kind of cyber security facilities they have.

“Wherever there are deficiencies, we have flagged them to the management of the banks and our supervisors sat down with them insisting on a timeline by when they will take corrective measures,” he said.