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Corporate Dec 16, 2012

Public banks should learn to say ‘no’ to unviable proposals: RBI

Mumbai: RBI Deputy Governor K C Chakrabarty has said risk assessment capability of state-run banks is lower than private sector banks and asked PSBs to develop the habit of saying "no" to unviable proposals.

"Knowingly you give money to some unviable projects. That is a governance issue...In many cases, our public sector bankers have forgotten to say 'no', except to small borrowers. A banker's first characteristic should be to say no," Chakrabarty told PTI in an interview.

According to the RBI data, gross NPAs of public sector banks (PSBs) rose to 3.3 percent. Reuters

The senior-most deputy governor, himself a commercial banker before being appointed on Reserve Bank of India (RBI) over three years ago, pointed out that "governance issues" in the functioning of public sector banks are leading to poor performance.

"The basic issue is that, the risk assessment capability and ability to price risks amongst the public sector banks is lower than the private sector banks or foreign banks," he said. "The governance capabilities for the state-run banks are definitely inferior (to their private sector counterparts)," Chakrabarty added.

According to the RBI data, gross NPAs of public sector banks (PSBs) rose to 3.3 percent as on end March 2012, from 2.4 percent a year ago, while for private lenders, the ratio declined to 2.1 percent from 2.5 percent during the same period.

A recent Icra report warned that the bad assets book of banks are set to cross the Rs 2-trillion-mark or about 3.8 percent of the total asset book this fiscal, driven mostly by public sector banks.

PTI


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