Reserve Bank of India (RBI) Governor Shaktikanta Das has called for stronger corporate governance at Public Sector Banks (PSBs) in a bid to make country’s banking sector well-organised.
Terming the deficiency of strict governance as the “elephant in the room,” Das said this had led to inflated levels of Non-Performing Assets (NPAs), capital shortfalls, fraud and inadequate risk management.
“The role of independent boards in fostering a compliance culture by establishing the proper systems of control, audit and distinct reporting of business and risk management has been found wanting in some public-sector banks leading to build-up of NPAs,” said Das.
Public Sector Banks (PSBs) handle about 60 percent of country’s banking industry. They are owned by centre, with the limited supervision and legal powers to ensure changes in management from the Reserve Bank of India having limited supervision, unlike privately-owned ones over which is holds more sway.
Das added that while the number of NPAs has gone down lately, the provision coverage ratio has inflated to 60.5 percent from 48.3 per cent a year ago. The capital adequacy ratio in the banking system also raised above the Basel requirements, he said.