Speaking to an audience comprising of all the top bankers, he said the new guidelines will be put in public domain and the RBI will be seeking comments before finalising any rules.
Citing the case of under-reporting of NPAs which used to go unrecognised earlier and is made compulsory now, and the benefits it gets, the DG urged banks to
disclose as much as possible to present a truthful picture.
"The default should be disclosed as much as I can so long as I am not hitting a provision of law or I am not providing a market strategy that is taking the bank forward," he said.
He also said that the RBI agrees with capital markets regulator Sebi's call on disclosure of divergences immediately by a bank and not waiting till the annual report, because this is price-sensitive information.
Vishwanathan also said that the banks should be working the most on governance practices in order to avoid any difficulties.
"Governance is the thing that banks and financial
institutions should look towards. Strengthen governance, recognise losses, look at why losses are beyond risk appetite, change your operations to confirm to risk governance of the system, improve your compensation system," he said.
Starting from the board level, there is a need for banks to "astutely" follow the RBI's instructions after a supervision report comes out, he said.
On early recognition, he said, "I would urge upon you to say that the best way to deal with a crisis or situation is not to defer the problem, and that is when we are likely to take the right actions at the right time. when things are delayed, it only continues to fester in the system."
He also made his displeasure at banks' tendency to come up with requests for deferring mark to market losses on investments, stating how they are the first ones to recognise profits.
Risk management practices are very important, and conflicts which can avoid like making the chief risk officer part of the loan clearance process, ought to be avoided, he said.
"The important thing that concerns RBI when it comes to financial sector intermediation in general and banks in particular, is risk management. If banks get this right, most of the problems are not likely to be there," he said.
The DG said there is also a need to strengthen the compliance function at banks, he said.
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