Banking News

banks: Lenders facing known and unknown challenges, need agile responses: Bank chiefs


Mumbai: Risks emerging from the misuse of technology, challenges to transition to financing sectors that are fighting climate change and increasing geopolitical complexities are the three main worries dominating banking today, CEOs at top lenders said. The solutions in some cases require regulatory intervention to ensure the risks do not turn systemic, they said at the FICCI-IBA banking conference.

State Bank of India (SBI) chairman Dinesh Khara said it is clear that the climate risk is going to be much more pronounced and significant in the years ahead, but banks are facing challenges in funding green projects.

“Multilateral agencies are unable to honour their commitments in green financing due to the situation they are facing in their home countries. In this situation, banks will have to step in. It will be good if regulations include some incentives like CRR (cash reserve ratio) cuts for raising green funds or risk weight reliefs for green financing,” Khara said.

Cash Reserve Ratio (CRR) is the amount of deposits banks have to compulsorily set aside with the Reserve Bank of India without earning interest. It currently stands at 4.5%. Exemption from maintaining CRR on funds raised through green financing will make it cheaper for banks. Similarly, lower risk weights for green financing will lower capital costs.

Khara said that besides the near-term geopolitical complexities of the wars in West Asia and Ukraine and the resultant impact on supply chains and financing, climate change is a medium-term challenge facing banks.

HSBC India CEO Hitendra Dave said though technology has made banking easier, the risks are sometimes unknown. He cited the example of the ransomware attack on the world’s largest lender by assets Industrial and Commercial Bank of China (ICBC) earlier this month which forced the bank to re-route trades using spreadsheets stored on portable drives and accessing the internet using dongles.”The truth is that though banks can move money swiftly if systems are working as expected, if anything changes then the money can easily go to someone else. We can naturally manage credit risk but not technology risks. We also do not know of geopolitical risks and their impact because a nut from a car can come from a country which is in trouble and can cause a serious shutdown,” Dave said.IDFC First Bank CEO V Vaidyanathan said that banks have to learn to lend to new kinds of borrowers like dog groomers and beauticians who do not form part of their historical job classification. “According to a NITI Aayog report, there are about 33 million such people in the so-called gig economy in the near future. These people will need to be banked and financed,” Vaidyanathan said.

Dave of HSBC said that if the Indian economy has to grow it has to look to selling its goods and services abroad as the local per capita is not big enough to absorb the increased production.


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