Strong corporate governance culture and accountability in public sector banks (PSBs) can help keep in check the ballooning non-performing assets (NPAs), said Reserve Bank of India Governor Shaktikanta Das on Saturday.
Speaking at a conference in Ahmedabad, Das said: "Many of the problems that currently seem to affect the PSBs such as the elevated levels of NPA, capital shortfalls, frauds and inadequate risk management can mostly be attributed to the manifestation of underlying corporate governance issues."
He added that 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 PSBs, leading to the mounting of NPAs.
Inadequate understanding of risks
The RBI Governor further noted that competency issues have arisen due to inadequacy to understand risk from a business perspective by the boards in some bank. Das highlighted that the increase in NPAs was significantly higher in PSBs as compared to their private and foreign counterparts.
PSBs, probably to fulfil the additional social objective of their mandate, took higher exposure in some of the critical sectors of the economy such as mining, iron and steel, and infrastructure.
"NPA levels in these sectors shot up as all these sectors suffered external shocks leading to the respective stress -- mining and energy was hit by the cancellation of allocation of coal blocks, while iron and steel sector faced cost pressures due to dumping of cheaper steel from China," Das added.
(With inputs from IANS.)
