The recent fiasco in United Bank of India (UBI) is not an isolated example and points to the larger issue of corporate governance in public sector banks, Reserve Bank of India’s (RBI) deputy governor K C Chakrabarty said on Tuesday.
RBI has raised the issue of enhancing corporate governance norms in public-sector banks with the government and called for action on a priority basis. Kolkata-based UBI reported doubling of net losses in the third quarter, following which its chairperson and managing director Archana Bhargava took voluntary retirement. RBI had asked an external agency to conduct a forensic inquiry in the bank, upon Bhargava’s request, which is also seen as unprecedented.
“With respect to UBI, it is neither shock nor surprise to RBI. Bank chairperson wrote to RBI and finance minister is saying that in the bank, accounts are not classified as NPA (non-performing assets), and requested for forensic audit. So we started forensic audit and the conclusions are found to be valid that bank accounts are not classified as NPA, because of technology or other reasons. This is nothing new that bank chiefs say NPAs gone up due to system-generated NPAs,” said Chakrabarty.
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“These issues point towards issues of corporate governance. We have written to the government of India to take steps and this is not for UBI but for banking system as a whole,” said the outgoing deputy governor.
“It is not a question of one or two banks. We are definitely worried about how the overall system is functioning. We are in dialogue with the government to improve the situation,” said Chakrabarty.
On whether the central bank has asked the government to reduce its stake in public-sector banks in order to provide greater autonomy, which is seen as key for better efficiency, Chakrabarty said while bank performance is ownership-neutral and if government ownership can ensure autonomy in banks, if the management quality can be maintained, there is no need for such a step.
“It is a question of quality of management and autonomy. If government ownership can ensure the autonomy in banks, if the management quality can be maintained, (then) there is no need. But if there is a constraint on that, the government may look forward. Second, there is an issue of budgetary constraint. So, if the government has some limitations, they may think of other options,” he added.