RBI governor Shaktikanta Das has called for stronger corporate governance at state-run lenders to make the country's banking sector more efficient. Lack of strict governance has led to high levels of non-performing assets, capital shortfalls, fraud and inadequate risk management, Das said in Ahmedabad today.
"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," Bloomberg quoted Das as saying.
Public sector banks control about 60% of the banking industry.
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While the level of NPAs has declined recently, the provision coverage ratio has risen to 60.5% from 48.3% a year ago. The capital adequacy ratio in the banking system has also moved above the Basel requirements, he said.
The stressed banking sector, weighed down by gross non-performing assets (NPAs) worth Rs 9.49 lakh crore at the end of the last fiscal, has been showing signs of a revival of late. The public sector banks had collectively posted a net profit in the first quarter of FY20, against a net loss of over Rs 13,000 crore in end June last year.
The immediate infusion of Rs 70,000 crore for recapitalisation of public sector banks - announced by the government in August - further fanned optimism.
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However, the situation was not the same till last year. According to The McKinsey's Global Banking Annual Review, the report said revenue growth within India's banking sector has dropped from 22 per cent (2002-07) to 10.3 per cent (2010-18). Moreover, banks in India experienced a dramatic drop in 'Return on Tangible Equity' over the last five years, from 17.7 per cent in 2013 to 2.3 per cent in 2018, the report said.
Banks should consider their options for building scale or competence through inorganic ways including both mergers and acquisitions as well as partnerships, the report said. Moreover, banks need to work hard to close the digital-skills gap, as technology has overtaken banking in perceived attractiveness of compensation and benefits, the report noted.
By Aseem Thapliyal