Governance gaps found in some banks despite guidelines, says RBI Guv Shaktikanta Das

Reserve Bank of India (RBI) governor Shaktikanta Das on Monday pointed out that the RBI has come across instances of some banks trying to conceal the real status of their stressed assets while governance gaps have also been noticed at certain lenders.

"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," he said at the Conference of Directors of Banks organised by RBI for private sector lenders in Mumbai.

Das said that despite the guidelines on corporate governance, it was a matter of concern that the RBI has come across gaps in governance of certain banks, with the potential to cause some degree of volatility in the banking sector.

"While these gaps have been mitigated, it is necessary that Boards and the managements do not allow such gaps to creep in," he stated.

Over-aggressive growth, under-pricing or over-pricing of products both on the credit and deposit sides, concentration or lack of adequate diversification in deposit/credit profile can expose the banks to higher risks and vulnerabilities, Das noted.

"From time to time, the Reserve Bank 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 (be it in credit/deposits) were creating avoidable vulnerabilities," he mentioned.

Having said that, Das also highlighted that over the years and especially in the recent period, banks have been able to maintain financial and operational resilience in the face of extreme stress originating from the Covid-19 pandemic, the continuing war in Europe and the banking sector crisis in certain advanced economies (AEs).

"Today our banking sector stands out as strong and stable with Capital to Risk (Weighted) Assets Ratio (CRAR) at 16.1 per cent, Gross non-performing assets (NPA) at 4.41 per cent, Net NPA at 1.16 per cent and Provision Coverage Ratio at 73.20 per cent at the end of December 2022," he said.

The Governor reminded that it is the joint responsibility of the Chairman of the Board and the Directors, both whole time as well as non-executive or part time Directors, to ensure robust governance in bank.

Also Read: Delhi HC dismisses PIL against exchange of Rs 2,000 banknotes without identity proof