At least four banks have been put on Reserve Bank of India’s critical watch list due to ethical issues and poor conduct. Another ten have received warning and are required to spruce up their capital.
Financial frauds are reported, many of them from public sector banks (PSBs). According to the analysis of the increasing non-performing assets (NPAs), the basic bank functions of deposit and credit have declined due to the search for non-banking products like insurance and mutual funds, which offer hefty commissions to officers of all ranks.
Moreover, PJ Nayak Committee has not suggested governance reforms, leading to the setting up of the Bank Board Bureau (BBB) for selection of directors and chairpersons. ‘Indradhanush’ plan launched by the Indian government, has not improved the governance of banks either. There are many underlying management issues, in PSBs in particular and the Indian financial system in general.
The audit and risk management committees of the boards, on board-sanctioned advances, which are unavailable to the public, seem to have given negative remarks. The external forensic audit of banks, which is done for defaulting companies, is given a miss for board sanctions.
In the context of the massive NPA restructuring policy hinted at the recently held meeting of bankers with the Finance Minister, the governance of banks would need to be critically looked at. Most public sector banks have a Chairman-Managing Director (CMD) or Managing Director (MD)-directed Boards.
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