Attrition high in private banks, they need to build core team: RBI's Das
Oct 31, 2023
Reserve Bank of India (RBI) Governor Shaktikanta Das spoke on a variety of issues in conversation with Tamal Bandhopadhyay, Consulting Editor, Business Standard, at the Business Standard BFSI Insight Summit.
On attrition in banks:
As part of our supervision, we are also looking at the rate of attrition—which is seen to be high in certain private banks. We have asked them to look at it because every bank at the end of the day has to build up its core team. This team should grow with the bank over the years. Today's youngsters are thinking differently, with so many opportunities, especially coming from the fintech sector and non-banking finance companies (NBFCs). The youngsters are a very impatient generation and there is nothing wrong with it. But I think it’s for each bank to build their own core team because there has to be something for organisational culture. We are looking at it very closely, because we find that the times have changed, and banks also need to give greater focus on this rate of attrition. It’s for the banks to really analyse and deal with it. We have not prescribed any norms or standards. We have just left it to the bank management. We feel your attrition rate is high, it’s for you to do whatever you want to do, because ultimately it will tell upon your organisational culture, the building of the whole team over a period of time.
On inclusion in the JP Morgan Global Bond Index:
Our effort over the past few years has been to expand the investor base in our market, especially the government securities market, and also to provide greater opportunity for participation. We have taken several steps like permitting domestic banks to offer margin facilities to the FPIs. JP Morgan’s inclusion is their decision. It is a vote of confidence about the Indian market and the Indian financial markets. JP Morgan, has given an estimate of $25 billion to come over a period of time. It’s a double-edged sword. There are many passive investors who are influenced with the weightage in the index. So the reverse can also happen. I think the overseas investors have great confidence in India's ability to service. There was never a doubt that the RBI would not be able to meet the dollar requirement because of the reserves which we had built up. When outflows happened after the Ukraine war, it was handled in a very seamless manner. When there were large-scale inflows, we utilised the opportunity to build up our reserves.
On corporate governance:
The Indian banking system and NBFC sectors at the moment are healthy and robust. Their financials are robust and healthy at the aggregate level as well as the individual entity level. Now, governance is something beyond these numbers, these numbers ultimately in the long run flow out of good governance. Our emphasis has been on good governance to ensure that these numbers continue. What differentiates a good institution of banking or an NBFC from not so good one is the governance. We are highlighting three components —strong robust risk management, compliance culture, and the strength of internal audit. Wherever we see any deficiencies or any deviations or any some problem building up somewhere, our job is to immediately flag the issue with the entity. Our supervisory teams are in direct touch with the bank managements. We have been doing a thorough verification inspection of the quality of the IT system in banks and what kind of cybersecurity facilities they have. We don’t want to hit big headlines by making statements that certain banks have a problem because sometimes in public perception, the interpretation may be disproportionately high or excessively high compared to the actual nature of a governance deficiency. We do not want to create unnecessary panic when there is no reason to panic.
On business models of the banks:
We are not interfering with the microlevel business models. When we say business model, it is from the point of view of the structure and composition or rather say the structure of the balance sheet. What kind of risk appetite is being reflected in the bank balance sheet, whether that risk appetite is matched or backed by adequate risk mitigation measures. So, we are looking at more of structural issues in the balance sheets, at the revenue models of banks, short-term risks, and short-term gain versus long-term risks.
On held-to-maturity (HTM) category:
Today, about 70 per cent of the investments made by the banks are held in HTM category and it is coming down as the banks have to sanction more and more loans. So, obviously, it’s putting some kind of pressure on the lendable resources available to the banks. And the statutory liquidity ratio (SLR) holding of the banks for the past several years has been well above the SLR minimum requirement. Now, in the recent months as credit offtake has picked up, the banks are slowly reducing their SLR levels, wherever they had excess SLR they're reducing. From the point of view of stability or safety or security of a bank, we already have liquidity coverage ratio requirement, which the banks are adhering to. We also have in parallel the SLR requirement, which they are all required to maintain and they are maintaining. We also have the cash reserve ratio (CRR) requirement that the banks maintain.
Regulation on NBFC and banks:
There are fundamental differences in NBFCs and banks. In bank, the new applicant will have to provide Rs 1,000 crore of equity capital whereas for an NBFC’s registration, it is still Rs 10 crore. Then there are other requirements like CRR. Overall the NBFC sector also enjoys certain flexibility with regards to lending. For example, in the case of banks, they are expected to have board approved policy for sectoral caps, exposure, credit exposure they should take to which particular sector. There are requirements mandated by the RBI. It is different for NBFCs. The larger NBFCs are doing it themselves by way of prudent management. Some narrative is being built up that the banks’ lending to the NBFCs are going up, and it can be a risk factor. Let me say very clearly that all these numbers of bank exposure to NBFCs at the system level as well as the individual bank level and far more granular details are being monitored by the RBI regularly, and more intensively than anyone can imagine. It will not be correct to say that we are nudging them to come as banks or something like that. We are not doing that. But it’s always open to any upper layer NBFC or anyone for that matter to apply for a banking license.
[The Business Standard]
