RBI DG urges some small finance banks to expeditiously consider appointing more whole-time directors

Reserve Bank of India

The Reserve Bank of India (RBI) Deputy Governor Swaminathan J said some small finance banks are yet to ensure the presence of at least two Whole Time Directors (WTD) and he urged these banks to expeditiously consider appointing more WTDs.

He further said that boards should prioritise proper succession planning for top management. Having just one Whole Time Director (WTD) can create potential vulnerabilities, especially in times of transition or unforeseen circumstances. Without a well-thought-out succession plan, the bank may face leadership gaps that could disrupt operations and affect strategic decision-making.

“A broader pool of experienced leaders also contributes to better governance and more resilient management structures,” Swaminathan said during the keynote address at the Conference of Directors of Small Finance Banks in Bengaluru on September 27.

Small Finance Banks have demonstrated strong growth since their inception, now accounting for 1.18 percent of total banking assets (as of March 2024). This is a substantial rise from 0.44 percent in March 2018. The deposit base has grown at a 32 per cent compounded annual growth rate (CAGR) over the last five years whereas net advances recorded a CAGR of 26 per cent, RBI deputy governor said.

He also urged boards to consider the sustainability of their growth strategies and business models by conducting a thorough review of both the liability and asset sides of the balance sheet.
“Specifically, they should assess whether there is an overdependence on high-cost term deposits or bulk deposits from a limited number of institutions. Additionally, they should evaluate any substantial asset exposures that could adversely impact the bank if they were to sour,” he added.

Swaminathan also address the issue of cyber security and IT vulnerabilities. Being relatively new entities, SFBs have used technology to enhance their product offerings and customer service. However, with their increasing digital footprint, these banks face significant operational risks from growing cyber threats, digital frauds, and possible data breaches.