Bank health rests on growth rebound
The RBI on Tuesday said slowdown in the economy has hit bank credit even as it warned of “fault lines” in some private sector banks.
In its report “`Trend and Progress of Banking in India 2018-19”, the central bank said gross non-performing assets as a percentage of total assets have improved last fiscal after deteriorating for seven years.
Gross NPA for all banks came down to 9.1 per cent from 11.2 per cent in 2017-18.
Gross NPA of public sector banks improved to 11.6 per cent in 2018-19 from 14.6 per cent in the previous fiscal, while that for private sector banks rose to 5.3 per cent from 4.7 per cent, primarily driven by the huge bad loan pile at IDBI Bank.
Excluding IDBI Bank, Gross NPA of private sector banks have fallen.
The RBI, however, warned the NPA level was still high. “Notwithstanding the improvement in 2018-19, the overhang of NPAs remains high. Further reduction in NPAs through recovery hinges around a reversal of the downturn in the economy.”
The RBI report flagged concerns about speedier resolution of stressed assets, corporate governance and frauds. It said fault lines were becoming evident in the corporate governance of some of the private sector banks, though it did not reveal any names.
The banking regulator is in the process of issuing draft guidelines on corporate governance for regulated entities. The objective of the proposed guidelines will be to align the current regulatory framework with global best practices, keeping in mind the domestic context.
“The growing size and complexity of the Indian financial system underscores the significance of strengthening corporate governance standards in regulated entities. The recent governance failures in some financial entities have brought to the fore the impact of the quality of corporate governance on efficiency in allocation of resources as well as on financial stability,” the report said.
The amount of frauds reported by banks and financial institutions during 2018-19 rose to Rs 71,543 crore from Rs 41,167 crore in the previous year.
“In February 2018, the Government had issued a framework for timely detection, reporting and investigation relating to frauds in public sector banks, which required them to evaluate bad loan accounts exceeding Rs 50 crore from the angle of possible frauds, to supplement the earlier efforts to unearth fraudulent transactions. This appears to have caused the sharp jump in reported frauds in 2018-19’’, the report said.
The modus operandi of large value frauds, which account for 86.4 per cent of all frauds reported during the year in terms of value, involved, diversion of funds by borrowers through various means, mainly via associated or shell companies.