By Swati Bhat and Siddhi Nayak
MUMBAI (Reuters) -The Reserve Bank of India 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, its governor said on Monday.
“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 during his inaugural address to directors of banks at a conference organised by the RBI.
Das did not name any bank. Instead, citing examples, the governor said that supervisors had spotted some instances of sale and buyback of stressed loans between two lenders, structured deals with good borrowers to conceal stress and disbursement of new loans close to the time of repayment.
Das also said that despite the guidelines on corporate governance, it was a matter of concern that the RBI has come across gaps in governance at certain banks, which have the potential to cause some volatility in the sector.
“While these gaps have been mitigated, it is necessary that boards and the managements do not allow such gaps to creep in,” he said.
However, the Indian banking sector today stands out as strong and stable with a good capital-to-risk-weighed asset ratio, low gross and net bad loan ratios and a healthy provision coverage ratio, Das said.
“It is in times such as these that complacency may set in,” he flagged. “We have to bear in mind that risks often get overlooked or forgotten when things are going well.”
Therefore, bank boards and senior management should keep a constant vigil on external risks and build-up of internal vulnerabilities, if any.
A robust governance structure is the most important requirement to ensure the stability of a bank and sustainable financial performance, Das added.
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 banks to higher risks and vulnerabilities, Das said.
“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 said.
(Reporting by Swati Bhat and Siddhi Nayak; editing by Sudipto Ganguly and Dhanya Ann Thoppil)
