RBI looking to establish a global model of risk-focused supervision: DG

The Reserve Bank of India (RBI) is looking to engage more with the central banks of the global south and aims to establish a global model of risk-focused supervision, said Swaminathan J, deputy governor, RBI, on Tuesday.

“The RBI aims to establish a global model of risk-focused supervision by fostering a strong risk discovery and compliance culture, building a ‘through-the-cycle’ risk assessment framework. RBI is working to create a comprehensive data analytics ecosystem to support its supervisory functions,” said Swaminathan, speaking at the RBI@90 High Level Conference.

He highlighted that historically, crises have acted as catalysts for bringing supervisors together to address shared challenges. The Basel Committee on banking supervision was formed in the aftermath of the Herstatt Bank failure, highlighting the necessity for a coordinated response to systemic risks.

“However, we should not wait for crises to play out before strengthening international collaboration. Greater engagement for proactive horizon scanning of potential risks and vulnerabilities, along with discussions on strategies to mitigate and address these challenges, can enhance our collective resilience and crisis preparedness,” said Swaminathan.

Meanwhile, Swaminathan also emphasised that financial risks can build up over time, especially in periods of economic euphoria. Additionally, the growing interconnections between financial institutions, markets, and the broader economy make the system more susceptible to shocks, he cautioned.

Further, he underscored that traditional risks, like credit and liquidity risks, now have new and faster drivers. Bank runs that once unfolded over days, giving regulators time to respond, can now occur within hours due to the speed of internet and mobile banking, he said, adding that the increasing reliance on technology also introduces vulnerabilities, such as dependence on third-party service providers and heightened cybersecurity threats, all while customers expect uninterrupted services.

“In this increasingly volatile environment, building resilience is crucial to maintaining financial stability. However, resilience is a balancing act—too much emphasis on safeguarding can stifle innovation and growth, while too little can expose the system to significant vulnerabilities,” he said, adding that finding the right balance so that we can have a robust financial system that can weather crises without constraining economic progress is one of the key challenges that we face today.