Some banks using ‘innovative ways’ to conceal stressed loansRBI chief Shatkikanta Das

By India Today Business DeskReserve Bank of India (RBI) Governor Shaktikanta Das on Monday flagged risks about governance gaps at some banks, adding that some financial institutions have been trying to conceal the extent of stressed loans using “innovative ways”.

During his inaugural address to directors of banks at a conference organised by RBI, Das said, “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.”

While the RBI chief did not name any banks, he cited examples and said 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.

Shaktikanta Das went on to add that despite strict guidelines on corporate governance, the RBI came across gaps in governance at certain banks, which have the potential to cause some volatility in the sector.

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“While these gaps have been mitigated, it is necessary that boards and management do not allow such gaps to creep in,” Das said.

Banking sector remains strong

The RBI governor, however, said the Indian banking sector remains resilient and stable with a good capital-to-risk weighed asset ratio, low gross and net bad loan ratios and a healthy provision coverage ratio.

“It is in times such as these that complacency may set in,” he said, and added that “risks often get overlooked or forgotten when things are going well”.

He urged bank boards and senior management to keep a constant vigil for external risks and build-up of internal durabilities, if any.

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Shaktikanta Das said a robust governance structure is the most important requirement to ensure the stability of banks and their financial performance.

He added that factors like over-aggressive growth, under-pricing or over-pricing of products both on the credit and deposit sides, concentration or lack of adequate diversification in the deposit-credit profile can expose banks to higher risks and vulnerabilities.

“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.