Chairpersons and Directors of the Boards of Small Finance Banks; Chief Executive Officers of SFBS; Executive Directors, Chief General Managers and ColleAgues FR. Om the reserve bank of india; ladies and geentlemen. A very good morning to all of you.

It is an Honour to Address this distinguIShed Gathering in the Inaugural Conference of Board of Directors of Small Finance Banks Organised by the RBI. , This Conference is in Continuation of the Reserve Bank's EFFORTS to Reach Out to ITS SUPERVISED ENTIES Through A.Direct Dialogue With their Boards and Top Management. Our objective is to reaffirm the image of good Ing Sustainable Growth.

In his address to the Directors of Public and Private Sector Banks Last Year, The Gover Outlined A Comprehensive 10-POINTER that Addressed Key Aspects Such As T He Role of the Board, its independent, the importance of setting the tone from the top, etc, etcHIS Speech Serves as an Excellent Blueprint for Regulatory Expectations from the Boards of Directors, and I ENCOURAGE You to Review it if you have almedy.

TODAY, I would like to dischams the key issues with you: (i) The Vital Role of Small Finance Banks in Promotion Financial Inclusion, (II) ngthening Governance and Assurance Functions for Sustainable Growth, and (III) Important Considerations RegardingBusiness Models and RISKS that Boards Should Be Mindful of.

As you are aware, the livensing of Small Finance Banks WAS Intropuced A Decade Ago, in 2014, with the primary object of Advancing Financial Inclusion. g as a vene to movement savings, sfbs we also envisioned to extenable credit to underserved and unorganisedSECTORS, Such As Small and Marginal Farmers as Well as Small Business Units, by Leveraging Technology to Reduce Costs and IMPROVE Accessibility.

India, TODAY, Stands at a Pivotal Moment in Her Development Trajectory. In the last 75 Years, we have transformed our. ndustry and services. However, Translation Our GDP Into Higher Per Capita GroupDeveloped Economies Will Require A Comprehensive Approach Towards Inclusion and Sustainable Economic Growth. PMENT, Employment Generation, and More Personently Further Deepening of Financial Inclusion.. On the control, it is very significant, as sfbs play a cracial root in Extending Financial service Lusive Growth that will be elential for india's progress towards beComing a high-form economy.

In a developing country like india, it is image for the Financial sector, Including Small Finance Bank a Balance Between Profitability and Social O. bjectives. This can be acheieved Through a Strategic Focus On Sectors That Deliver High Social Impact, Ensury that Financial Growth isAligned with The Broader Goal of Inclusion Development. It is therefore essential for sfbs to actively participate Sched schemes to promote greater accessibility of attarDable Credit, especially among the vulnerable sections of the social.

As the target group of such learning is mostly the marginalized and underSerServed Sections of the Society, it is essential for the sfBS to Adopt Respare Lending PRA CTICESGuoabong Investment. It is disheartening to come across egregious prActors by some sfbs, such as charging excession intensivest rates, collectingInstalments in Advance As Well as Not Adjusting Such Advance Collections Against Loan Outstanding, Levay of usurious fees, ETC. It is Also Observance Rees DRESSAL MeChanism is far from adequate in most sfbs.

I therefore feel that person, and the Ion to. It is not just about meeting regulatory requirements such as priority sector lending but all attressing the true impact off your effectOn Underserved Community. Boards Can Reflect on WHETHER the Bank is Genuinely Reachlying Marginalised Groups, Such as Low-found HouseHolds, Small Business, AN d rural population, and how effectively it is using technology and innovative produts to bridge Financial gaps, as these wese weel the.objectives of having a distente assine for sfbs.

An Effective Governance Framework is the Foundation of Resilient and Well Managed Institute, ESPECIALLY in the Context of Banks. On of Responsibilities Between The Board and the Management to Ensure Smringing of the Bank. While the board is residation forSetting The Overall Strategic Direction, Establishing Policies, and Ensury that the Bank Adhees to Regulatorys and Ethical Standards, The Management I s Responsible for the Execution of the Board's Strategy and Operations. It is the board's root to provide oversight, Asking the Right Questions andHolding The Management Accountable for Execution the Bank's Strategy with the Agreed Risk Appetite.

In this context, it is imageive that the views of the building are clearly articulated and documented in the minutes of the building and its various Mittees. It is said that the 'palest ink is better than the best memory'.Proper Documentation Serves as a Vital Record of the Board's Delibrations, DeCisions, And Rational Behind Those Decisions, Ensuring Transition Ty in Governance. Clear Minutes Not only Provideo A Historial Account of the Board's Discussions But Alve as a Reference Decision-MAKINGHelping to makeain controly and clarity in Governance Practors.

Boards Should Prioritise Proper Successing for Top Management. Having Just One WHOLE TIME DIRECTOR (WTD) Can Create Potential Vulnerabilities, Espect n times of transition or unforeseen circumstances. Without a Well-Thoght-OUCCESSION PLAN, The Bank May Face Leadership Gaps ThatCould Disrupt Operations and AFFECT Strategic DeCision-MAKING. A Broader Pool of Experienced Leaders ALSO CONTRIBUTES to Better Governance and More Resilient Mana Gement Structures. We Observe that While the sfbs are streaming their boards by bigctors, some sfbs are yet to entSure thePresence of at Least Two WHOLE TIME DIRECTOM.

Boards Should Accord Due Importance to Assurance Functions, namely, Risk Management, Compliance and Internet Audit. iFying and Mitigating Risks, ENSURING Compliance with Laws and Regulations As Safeguarding The Organisization's Integrity.

Boards Should Ensure That Heads of Assured Functions Are PositionEd ApproPriaately Within the Organisizational and GRANTD DIRECTD DIRESSSSSSSSSSSSSSSSSSSSSSSSSSSSS -Hatting, or Combining Assurance Responsibilities with Operational Or Management Duties, Undermines the Independence and Objectivity of Assurance Functions by C REATING ConflicTs of Interest. There.

Small Finance Bank Demonstraated Strong Growth Sheng their Inception, Now Acoundting for 1.18 Percent of Total Banking Assets (as of March 2024). IAL RISE from 0.44 Percent in March 2018. The deposit base has grown at a 32 per center compoundededAnnual Growth Rate (CAGR) Over the last Five Years whereas net advances record a Cagr of 26 Per Center. While The Business Growth In Small Banks IS Inded IMP Res IS Impeature that Boards Remain Vigiland for Hidden and Emerging Risks That Could Jeopardise TheirrLong-term Success.

In this context, I would like to highlight a few area that boards could kep in mind.

FIRSTLY, I Would Urge Boards to Consider the Sustainability of their Growth Strategies and Business Models by Conduction A Thorough Review Y And Asset Sides of the Balance Sheet. Specifically, They Should Assess WHETHER TheRE IS An OverDependnce on High-Cost Term DepositsOR BULK DEPOSIT FROM A Limited Number of Institutes. Additionally, They Should Evaluate Any Substantial Asset Exposures That Could if they we to source. These are essential aspects that the board and its risk management committed scrutinise to ensure long-termStability and Resiliation.

Secondly, I would like to emphasise proprdit risk underWriting. While Many Banks Have Expanded Retail Lending, hoping to leverage the iFication benefits it offers, there is an underlying correlation risk that beComes more pronound during economic downloadCredit Profile of A Large Segment of BORROWERS Can Be Significantly Impactly, Leading to Higher Default Rates. This Highlights the Importance of Rigorous ItiCesses that carefully assess the creditwords of BORROWERS, Rather Than Relying Solely on Automated Systems or AlgorithmsKanpur Investment. Uld Consider aComprehensive rangled of factors, including inceome stability, credit history, and the overall economic environment, to entSure that loans are made judiciously.

FURTHER, While Digital LENDING SOLUTIONS HAVE Streamlined The Process and MADE Access to Credit Easier, on-the-found Presence for Collections Remaint. Resorting to CoerCive Recovery Practices as a Means of Mitigating Risk is Not A Sustainable Solution. Such Practures Not only HarmThe Bank's Reputation But Can AlsoD to Legal and Regulatory Repercussions. And Collaboration is Borrowers. This Includes Strictly Adhering to Fair PracticeS Code and Adopting An Empathetic APPROACH WHILILILING WITH Stressed Loan B ook.

Thirdly, I would like to address the backber security and it vulnerabilities. Being Relately New Entities, SFBS HAVE USED Technology To Enhance T Heir Product Offerings and Customer Service. However, with their increasing digital footprint, theSe Banks Face Significant Operational Risks GROMINGINGINGINGINGINGCyber ​​Threats, Digital Frauds, and Possible Data Breaches.

The Cyber ​​Security Landscape is Evolving Rapidly, and sfbs must stay ahead of emerging threats to protrly. The SFBS Should Adopt Robust Business Continuity Plans and Effective It Outsourcing Strategies. TheRe is also a Need To Ensure Rigorous ChangeManagement processes, comprehensive data profiles, vigular transaction monitoring, Stringent Access Controls and Network Security Protocols. Measures Will Help SFBS to Significantly Enhance their It Resilleience Against Possible Disruptions.

FourThly, While I have coverered cybersecurity threats, I would also like boards of sfbs to mindful of the larger iss. During Periods of rapi rapi rapi rapi rapi rapi rapi rapi D Growth, The Focus on Increasing Market Share, Launching New Products, and Acquiring Customers Can Lead toa neglect of essential risk management practices. For example, hastily onboarding new customers without thorough KYC due diligence or rushing the deployment of technology solutions without adequate testing can increase the likelihood of frauds, errors and service disruptions. Growth is important for the success of SmallFinance Banks. However, it must not comed by overlooking operational controls.

Another Significant Area of ​​Concess for Operational Risk is the High Attrition Rate AMOFF in Small Finance Banks. WHILE The Branch Network and Employ HeadCount s are expanding, the sector faces a very high attribution of nearly 40 per center, particularly among FrontLine Staff and JuniorManagement. Such Elevatured Turnover, Thought Mostly at the Entry and Junior Management Levels, Poses Substantial Operational Risks, AS Can Lead to a Loss of Institututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututututut Ional Knowledge, DISRUPTION in Service Delivery, and Increased Training Costs for NEW HIRS. To Mitigate These Risks,Board-Level EFFORTS Are Essential To Focus on Employeeeeeeee Retention Strategies at all levels. Further, The Absence of Successing for Critical Managerial Ions is a common issues across sfbs, which requires immetiate attents to ensure a small transition of leadership and mailizationalEffectiveness.

In conclusion, sfbs with their outreach to run and semi-Urban areas, are intended to be one of the key enabler in Credits to Individuals, weaker sect Ions, Entrepreneurs, SHGS/JLGS and Msmes. They Have a Large Role to Play in AchievingOur aspirational Goal of Becoming A Developed National by 2047.

As rbi CeleBrates 90 Years of its found this year, we have set deepening financial inclusion as one of our cherished objectives for Rbi@100. RBI. TINUED Commission Towards A Financially Inclusive India, Has Taken Several Measures to Support the Segments Ranging from FromPriority Security LENDING TARGETS to the InTropuction of Treds for MsMes. Nabling Frictless Credit "with the 'New Trinity' of Jam-Upi-Uli, FURTHER PropeellingIndia's Growth Story.

SFBS Should Strive to Harness This Opportonity and Other Such Opportunities Offered by Latest TECHNOVATIONS for Efficient and Cost-Effective SERV Ice Delivery. FURTHER, with Robust Governance and Effective Board Oversight, SFBS Can CapitalISE on their Stringths While Meeting Growth and Stability Ives.

With this, I would you all the best for the coming sessions and hope that you found the session of the stimulating. THANK YOU!