Prioritise depositors over shareholders: RBI deputy governor M K Jain

Mumbai, June 1, 2023

RBI deputy governor M K Jain has asked bank directors to prioritise depositors' interests over those of shareholders. Jain urged directors on banks' boards to monitor key risks, question the management on risk matters, and implement risk mitigation measures.

\ain was speaking at a Conference of Directors of Banks organised by the RBI here recently. It was the first time the central bank directly addressed public and private sector banks' boards in a conference. The deputy governor asked the directors to remain vigilant, adaptive, and continuously assess their bank's performance, risks, and opportunities, and take timely and informed decisions.

"Banks are allowed to raise substantial amounts of uncollateralised deposits. Unlike other corporates, shareholders provide just 3-4% of funds in banks, and the predominant suppliers of finance are depositors. Second, banks perform the function of liquidity and maturity transformation, which makes their business inherently risky," said Jain.

Hence, the governance structures and practices in the banks should prioritise depositors' interest and maintain their trust, he added.

According to Jain, the board has a larger role in ensuring sustainable growth and stability of the banking sector. "Boards must adopt a proactive and strategic approach. Effective risk management, governance, and compliance practices are essential in safeguarding the bank's reputation, financial stability, and long-term viability," Jain said.

[The Times of India]