over - exposure to risks associated with excessive leverage and imprudent risk taking. fundamental to islamic finance is the profit and risk sharing which explicitly requires the appropriate due diligence and ensures that the profit is commensurate with the risks. the risk associated with the real investment activity is therefore explicitly integrated into the financial transaction. there is thus an explicit emphasis on the economic viability of the underlying assets and on good governance, ethics and transparency. it is these very elements of islamic finance that provides an in - built mechanism that enhances the prospects for its soundness and stability. as islamic finance evolves to meet the changing requirements of businesses and consumers, innovation is integral to the development of new islamic financial products and services. it is recognised, however, that unfettered financial innovation can become a major source of instability. in islamic finance, innovation must be tested against the objectives of the shariah, where the primary objective is the realisation of benefit to the people. this demands the internalisation of shariah principles in islamic financial transactions, both in form and substance. indeed, shariah - based innovation brings with it a shariah - compliant culture in the islamic financial institutions that serves to ensure that the product development process incorporates ethical value propositions. a central bank's perspective from a central bank's perspective, ensuring financial stability of the islamic financial system is the paramount objective. integral to the efforts in the development of islamic finance, is therefore, the strengthening of the regulatory and supervisory framework. the islamic financial services board ( ifsb ) which was established in 2002 has been instrumental in developing and issuing global prudential standards and guiding principles for the industry. this has included capital adequacy requirements, to governance and risk management standards. the ifsb has also contributed to the harmonisation in the development of islamic finance across different jurisdictions. while the basic legal, regulatory and supervisory framework that takes into account the distinctive features of islamic finance are already in place, efforts are now underway to put in place a comprehensive infrastructure to deal with the new challenges confronting the international financial system. looking beyond the current crisis, an integrated crisis management framework will be part of this infrastructure. it is recognised that a more facilitative and modernised legal framework is also required and that the boundaries of the regulatory framework for islamic finance would also have to be regularly adapted to keep pace with the evolution and transformation of the financial system. finally, the supervisory framework for islamic finance is also

shaktikanta das : indian banking sector - current status and the way forward speech by mr shaktikanta das, governor of the reserve bank of india, at the 15th annual convocation of post graduate diploma in management, national institute of bank management ( nibm ), pune, 8 june 2019. * * * i am happy to be participating in the fifteenth annual convocation ceremony of post - graduate diploma in management ( banking and financial services ) for the batch of 2017 - 19. i thank dr. k. l. dhingra, director, national institute of bank management ( nibm ) and members of faculty for inviting me to join the young minds at their convocation ceremony. this is indeed a moment of pride for students as it marks the fruition of years of dedication, perseverance and hard work. to the students, i would like to convey my best wishes as they embark on a new phase in their lives. i am certain that it will be a life full of opportunities and challenges, and i hope you adopt a path of integrity and ethics to be able to make tough decisions as you move forward. as the father of the nation, mahatma gandhi, had said, “ always choose the right path and speak truth ”. your self - faith and determination will provide you with the strength to march ahead. my congratulations are also for the parents and guardians who are present here. 2. let me now turn to the topic which i am going to address today. i propose to cover the current status of the banking sector and would highlight some issues as a way forward. banking sector 3. the last few years have been testing times for indian banks as they grappled with deteriorating asset quality leading to higher provisioning requirements, falling profitability and weak capital position. however, the banking system is on the cusp of a transformation, aided by recent policy measures to reduce vulnerabilities and improve its financial health. several initiatives have been undertaken and are also underway to strengthen the regulatory and supervisory frameworks aimed at increasing the resilience of the banking system. banking regulation 4. as of march 2019, the capital to risk weighted assets ratio ( crar ) of scheduled commercial banks ( scbs ) at 14. 2 per cent remains well above the regulatory requirement of 9. 0 per cent. however, if we take into account the capital conservation buffer ( ccb ), some banks, especially public - sector banks ( psbs ), are falling short of