The newly constituted monetary policy committee (MPC) unanimously changed the stance of the policy to ‘neutral’ and is committed to unambiguously focusing on a durable alignment of inflation with the target, while supporting growth. The proven effectiveness of the FIT approach could help tame inflation down to an average of 4 per cent. As such, RBI is of the firm view that the inflation horse has been brought to the stable. A little more patience and realistic alignment of policy measures could lock the tamed inflation horse in the stable on a durable basis to provide a firm foundation for growth.

The sharp market intelligence information and soft spots in the economy pinpointed in the policy narrative should work as constructive strategic tools for banks and non-banks to transform their business models to unleash risk-adjusted growth. The RBI underlined the need for lenders to improve their underwriting standards and post-sanction monitoring systems by strengthening risk management architecture. Risks can also emanate from inoperative deposit accounts, cyber security landscape, and mule accounts. The operational risk management radar has to be sharper to pick up any intrusions/interceptions.

The RBI has hinted to NBFCs including MFIs and HFCs to adopt sustainable business models and create an operating ecosystem to inculcate a ‘compliance first’ culture. Banks should also use these messages to introspect into their way of augmenting business and its underlying philosophy.

Way forward

Anyway, the interest rates will come down, inflation will soften and GDP will rise but financial intermediaries have to brace for upcoming bullishness in the business environment by adopting risk-proofing strategies. The ALM gaps are narrowing, and new ways of augmenting resources are on the horizon, innovative term deposit products at elevated interest rates are making way. Competition for banks from non-banks is on the rise. Apart from domain-specific business risks, the increased use of innovative technology tools is increasing operational risks. A single-minded focus should be on reinventing risk management capabilities and honing employee skills.

The additional measures such as the removal of pre-payment charges on loans to MSEs, identifying capital raising avenues for primary (urban) coop banks, creation of Reserve Bank Climate Risk Information System, enhancement of limits in UPI usage, allowing verification of name of the account-holder before funds transfer through RTGS/NEFT are some of the forward-looking reforms for better entrenched financial stability.

The writer is an Adjunct Professor, at the Institute of Insurance and Risk Management, Hyderabad. Views are personal