RBI head calls out governance issues and stresses asset misreporting at some institutions. On Monday, the Reserve Bank of India governor stated certain banks have tried to hide their stressed assets, and governance weaknesses have been found.
“During the course of our supervisory process, certain instances of using innovative ways to conceal the real status of stressed loans have also come to our notice,” Shaktikanta Das said in his first address to bank directors at an RBI conference.
Das named no bank. Instead, offering examples, the governor said regulators had found certain instances of sale and buyback of stressed loans between two lenders, constructed transactions with good customers to mask the stress, and issuance of new loans close to payback.
Das also noted that the RBI had found governance deficiencies at several banks, which could generate sector volatility notwithstanding corporate governance norms.
“While these gaps have been mitigated, it is necessary that boards and managements do not allow such gaps to creep in,” he said.
Das said the Indian banking sector is strong and stable with a decent capital-to-risk-weighed asset ratio, low gross and net bad loan rates, and a good provision coverage ratio.
“These times may lead to complacency,” he warned. “Risks often go unnoticed when things are going well.”
Bank boards and senior management should constantly monitor external risks and internal vulnerabilities.
Das noted that strong governance is essential for bank stability and financial performance.
Das said over-aggressive growth, under- or over-pricing of credit and deposit products, concentration, and lack of deposit-credit diversification could put banks in danger.
“RBI has engaged with certain banks on the need to make suitable adjustments in their business strategies where it was observed that over-aggressive growth in certain business segments were creating avoidable vulnerabilities,” Das added.
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