Small Finance Banks Must Capitalise On ULI: RBI Deputy Governor Swaminathan

In his speech, he discussed the vital role of the SFBs in promoting financial inclusion, the necessity of strengthening governance and assurance functions for sustainable growth, and important considerations regarding business models and risks that boards should be mindful of.

He said it is essential for the SFBs to actively participate in extending credit under various government-sponsored schemes to promote greater accessibility of affordable credit and must adopt responsible lending practices.

Given that their grievance redressal mechanism is far from adequate, boards must give much consideration to periodically reviewing if the bank is fulfilling its financial inclusion objectives. "It is not just about meeting regulatory requirements, such as priority-sector lending but also about assessing the true impact of your efforts on underserved communities," he said.

On strengthening governance, he said boards should prioritise proper succession planning for top management. He has requested the SFBs to expeditiously consider appointing more whole-time members as opposed to one.

"Having just one whole-time director can create potential vulnerabilities, especially in times of transition or unforeseen circumstances," he said. "We observe that while the SFBs are strengthening their boards by bringing in new directors, some SFBs are yet to ensure the presence of at least two whole-time directors."

He also highlighted certain risks that the boards of SFBs could be mindful of, such as business models, credit and cyber-security risks, third-party dependencies and operational risks.