BT Banking & Economy Summit: Governor Shaktikanta Das says it is not RBI's job to do due diligence of every loan

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said that the central bank is not looking into banks’ day-to-day activities like issuing loans and sanctions, but it is the banks’ risk management department’s job to look for red flags of bad loans.  

In a conversation with Udayan Mukherjee, Global Global Business Editor, India Today Group, Das, when asked about the ICICI Bank-Videocon loan fraud case of over Rs 3,000 crore, said: “The banks have credit sanction committee, they have boards of directors, senior management to take these calls, they have qualified professionals, it is their responsibility to do the due diligence. We (RBI) cannot be looking into loan approval and due diligence. That’s not RBI’s job. If RBI or in that in case any regulator in any country gets into these those areas, it will be highly detrimental to the credit effect.” 

Das, who was at the Business Today’s Banking & Economy Summit and the BT-KPMG Best Bank Awards in Mumbai, said that the RBI doesn’t look into individual cases of failure, but looks into the overall scenario. 

Earlier, talking about the reforms in the banking systems in terms of non-performing assets, Das said that RBI is very cautious about the stress level of a sector while giving away loans. He explained that RBI monitors the stress level at many points in sectors, industries, and banks, which helps them in taking the required action.   

“Post IL&FS and bad asset problems the banks faced, we have tightened our supervision. The type of things we are looking at in banks and NBFC sectors are first of a kind. We have developed early warning signals, we are looking into business models of banks, our information system in terms of data we get from banks that have been further improved,” Das said on RBI’s policy.    

In its latest Financial Stability Report (FSR), the RBI said gross bad loans at banks have been declining and hit a seven-year low of 5 per cent in September. Its stress tests showed that banks are capable of absorbing shocks even under adverse situations, the report highlighted. 

In December 2022, Finance Minister Nirmala Sitharaman told Parliament that banks had written off bad loans worth Rs 10,09,511 crore during the last five financial years. A National Asset Reconstruction Company Ltd. (NARCL) was announced in the Union Budget for 2021-2022 to resolve stressed loans amounting to about Rs 2 lakh crore in phases.