Reserve Bank of India Governor Shaktikanta Das on Saturday called for strong corporate governance culture and accountability in public sector banks (PSBs) to check ballooning non-performing assets (NPAs).
"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," the RBI Governor said at a conference in Ahmedabad.
Das further said 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 mounting of NPAs.
Besides, the RBI Governor noted that the understanding of risks from a business perspective by the boards in some banks has been inadequate due to skill gaps and competency issues.
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.