Small Finance Banks Must Capitalise On ULI: RBI Deputy Governor Swaminathan
With robust governance and effective board oversight, the SFBs can capitalise on their strengths while meeting growth and stability objectives, Swaminathan says.
(Image by Shameer Pk from Pixabay)
Small finance banks must strive to harness the opportunity of the Unified Lending Interface platform and other such opportunities offered by the latest technological innovations for efficient and cost-effective service delivery, according to Reserve Bank of India Deputy Governor Swaminathan J.
Last month, the RBI announced that it would launch the ULI soon. The platform, introduced as a pilot project last year, aims to transform the lending space in India by providing a seamless and consent-based flow of digital information.
It is a public tech platform aimed at bringing efficiency to the lending process by reducing costs, quicker disbursement, and scalability. It will facilitate a seamless and consent-based flow of digital information, including land records from multiple states to lenders. It is designed to provide "frictionless credit," reducing the time taken for credit appraisal, especially for small and rural borrowers.
With robust governance and effective board oversight, the SFBs can capitalise on their strengths while meeting growth and stability objectives, Swaminathan said at the conference of directors of small finance banks in Bengaluru last week.
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.
