RBI's Swaminathan J said banking resilience must be 'designed' via transparent stress recognition, stronger balance sheets, and sharp supervision. He cited India's post-2015 experience as a lesson for building financial systems to withstand shocks.
Reserve Bank of India Deputy Governor Swaminathan J has said that banking resilience is not an accident of growth but must be "designed" through transparent stress recognition, stronger balance sheets, sharper supervision, adaptive regulation and responsible conduct inside banks.
Speaking at Columbia University's School of International and Public Affairs on Monday, he used India's post-2015 experience to outline lessons for building financial systems that withstand shocks.
Swaminathan noted India has entered a period of global uncertainty with "strength with vigilance." Despite geopolitics, supply-chain disruptions and volatile commodities, domestic activity remains resilient with inflation within tolerance, manageable external vulnerabilities, healthier bank balance sheets, comfortable capital buffers and non-performing assets at multi-decade lows.
But he stressed that "the best time to build resilience is when conditions are favourable," as risk builds quietly in good times and surfaces loudly when conditions change. He outlined five dimensions of "resilience by design."
The Five Dimensions of 'Resilience by Design'
Transparent recognition of stress
First, transparent recognition of stress. Citing the post-2015 Asset Quality Review, he said delaying recognition weakens credit discipline and raises the eventual cost of resolution. "Recognition required banks to provision, owners to recapitalise, borrowers to negotiate, supervisors to intervene, and markets to reassess risk. Transparency changes incentives," he said.
Balance sheet strengthening
Second, balance sheet strengthening. Recognition must be followed by credible action. In India, this meant the Insolvency and Bankruptcy Code, recapitalisation of public sector banks, consolidation for scale, plus depositor protection and digital public infrastructure.
Banks themselves improved provisioning, raised capital and diversified portfolios away from lumpy corporate exposures toward more granular retail, MSME and better-rated corporate segments.
Stronger supervision and prudential discipline
Third, stronger supervision and prudential discipline. The RBI's approach has moved from compliance checks to forward-looking assessment of governance, business models, technology risk, cyber resilience and conduct. "Modern supervision is not merely about checking compliance with rules. It is about asking whether governance is effective, whether risks are understood and priced correctly, whether control functions have stature," Swaminathan said.
Calibrated and adaptive regulation
Fourth, calibrated and adaptive regulation. With credit and payments now involving banks, NBFCs, fintechs and tech partners, regulation must be both entity-aware and activity-aware. He pointed to scale-based regulation for NBFCs, digital lending guidelines, IT governance rules and Covid-era relief with sunset clauses to avoid weakening long-term discipline.
Resilience within banks
Finally, resilience within banks. He said governments and regulators can set frameworks, but durability depends on everyday decisions inside institutions on pricing risk, managing liabilities, monitoring stress and governing technology.
Future Challenges and Conclusion
Looking ahead, Swaminathan said the next test will be managing complexity from AI, cyber risk, climate-related risks and financial interconnectedness. "Resilience is not a fixed achievement. It is a continuing institutional project," he concluded. (ANI)
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