hence, it is imperative that the approach to risk management in banks should be in tune with the realisation of more frequent, varied and bigger risk events than in the past. banks have to remember the old saying that care and diligence bring luck. to paraphrase oscar wilde, being caught unprepared in the face of a shock may be regarded as a misfortune, but to be caught unawares more than once may be a sign of carelessness. 2 17. notwithstanding the numerous steps already taken, there is always room for improvement to address several issues that may emerge in the medium to long - term. these issues are as common to nbfcs and other financial intermediaries as they are to banks. the supervisory approach of the reserve bank is to further strengthen its focus on developing financial institutions ’ ability to identify, measure, and mitigate the risks. the new supervisory approach will be two - pronged – first, strengthening the internal defenses of the supervised entities ; and second, greater focus on identifying the early warning signals and initiate corrective action. 18. to strengthen the internal defenses, higher emphasis is now being given on causes of weaknesses than on symptoms. the symptoms of weak banks are usually poor asset quality, lack of profitability, loss of capital, excessive leverage, excessive risk exposure, poor conduct, and liquidity concerns. these different symptoms often emerge together. the causes of weak financial institutions can usually be traced to one or more of the following conditions : inappropriate business model, given the business environment ; poor or inappropriate governance and assurance functions ; poor decision making by senior management ; and misalignment of internal incentive structures with external stakeholder interests. 3 19. we are placing special emphasis on the assessment of business model, governance and 4 / 6 bis central bankers'speeches assurance functions ( compliance, risk management and internal audit functions ), as these have been the areas of heightened supervisory concern. supervised entities generally tend to focus more on business aspects even to the detriment of governance aspects and assurance functions. there was also an apparent disconnect between their articulated business strategy and actual business operations. the thrust of the approach, therefore is, to improve the risk, compliance, and governance culture amongst the financial institutions. in this regard, the reserve bank has released a discussion paper on “ governance in commercial banks in india ” with the objective to align the current regulatory framework with global best practices while being mindful of the context of the domestic financial system.

) at this point of time, the overall capital adequacy ratio for scheduled commercial banks ( scbs ) stood at 14. 8 per cent as in march 2020, compared to 14. 3 per cent in march 2019. the crar of psbs had improved from 12. 2 per cent in march 2019 to 13. 0 per cent in march 2020. the gross npa ratio and net npa ratio of scbs stood at 8. 3 per cent and 2. 9 per cent in march 2020, compared to 9. 1 per cent and 3. 7 per cent as on march 2019, respectively. the provision coverage ratio ( pcr ) improved from 60. 5 per cent in march 2019 to 65. 4 per cent in march 2020, indicating higher resiliency in terms of risk absorption capacity. the profitability of scbs had also improved during the year. the gross and net npas of nbfcs stood at 6. 4 per cent and 3. 2 per cent as on march 31, 2020 as against 6. 1 per cent and 3. 3 per cent as on march 31, 2019. their crar declined marginally from 20. 1 per cent to 19. 6 per cent during 2019 – 20. supervisory and regulatory initiatives 8. an important objective of the reserve bank ’ s supervisory initiative has been to put in place systems and structures to identify, assess and proactively mitigate or manage the vulnerabilities amongst financial institutions. during the last one year, based on the assessment of events which had the potential to pose a threat to the financial stability, the reserve bank has reorganised its regulatory and supervisory functions with an objective of establishing a holistic approach to regulation and supervision. the unified approach is aimed at addressing the growing size, complexities, and inter - connectedness amongst banks and nbfcs. it is also aimed at effectively addressing potential systemic risks that could arise due to possible supervisory or regulatory arbitrage and information asymmetry. further, a calibrated approach has been designed to provide the required modularity and scalability to the supervision function to ensure a better focus on the risky institutions and practices ; to deploy appropriate range of tools and technology to achieve the supervisory objectives ; and to enhance capability to conduct horizontal or thematic studies across supervised entities on identified areas of concern. as a fulcrum of the calibrated supervisory approach, the reserve bank has strengthened its off - site surveillance mechanism to identity emerging risks and assess the