RBI Deputy Governor Addresses Urban Cooperative Banks on Assurance Functions

 

 In a significant address at the Conference of Heads of Assurance of Urban Cooperative Banks (UCBs) held today, the Reserve Bank of India's Deputy Governor, Shri M. Rajeshwar Rao, underscored the crucial role of assurance functions in maintaining the stability and integrity of the banking sector.

In his opening remarks, Deputy Governor Rao emphasized the RBI's ongoing engagement with supervised entities regarding governance and the effectiveness of assurance functions. He highlighted the importance of strong corporate governance and vigilance in ensuring the financial sector's stability. The conference, which saw participation from heads of risk management, internal audit, and compliance functions, aimed to reinforce the key role these functions play as guardians of safety and soundness within banks.

Rao pointed out that the ever-changing landscape of banking introduces new risks such as cybersecurity threats and operational disruptions, in addition to traditional risks like credit, market, and liquidity risks. "The proliferation of digital technologies and the interconnected nature of financial systems have exposed banks to a myriad of cyber threats," he noted, emphasizing the need for robust cybersecurity measures and proactive risk mitigation strategies.

He also addressed the complexity of operational risks, which have become more pervasive due to technological advancements and outsourcing arrangements. He stressed the importance of operational resilience, backup and recovery testing, and contingency planning to handle disruptions effectively.

The Deputy Governor highlighted the shifting dynamics of traditional risks, referencing the rapid liquidity runs seen in recent incidents in the United States, fueled by social media misinformation. He called for a shift towards activity-based regulation and supervision, ensuring that similar activities with similar risks receive the same level of oversight, albeit proportionate to the scale and complexity of operations.

Rao's speech also outlined specific expectations from heads of assurance functions in UCBs. He urged them to stay vigilant and adapt to new challenges, ensuring their banks remain resilient. He stressed the importance of well-documented, Board-approved policies for risk management and the meticulous monitoring of risk limits.

The Deputy Governor called for a forward-looking approach in compliance functions to prevent non-compliant activities and emphasized the need for high-quality internal audit processes to verify compliance with internal controls.

Highlighting the role of RBI's onsite examinations, Rao stated they are meant to provide insights into the overall health of banks and address issues that internal and external audits might miss. He urged banks to address the root causes of issues identified in Risk Assessment Reports and Risk Mitigation Plans issued by the RBI.

Concluding his address, Rao stressed the importance of independence in assurance functions, ensuring they have the necessary stature and direct lines of reporting to avoid conflicts of interest. "Effective assurance functions are indispensable in promoting trust, integrity, and compliance within the banking sector," he said, calling for a collective effort to navigate future challenges and ensure the long-term success of financial institutions.

The conference ended with an interactive session, where the Deputy Governor listened to feedback from the attendees, reinforcing the RBI's commitment to collaborative engagement with the banking sector.