By Aditya Raj Das
Reserve Bank of India’s Study report ‘Governance, Efficiency and Soundness of Indian Banks’ has observed that although banks in India have made significant progress in adhering to governance standards over the recent years, The current level of compliance is not adequate to mark the existing governance structure as “socially efficient”.
It suggests that to avoid the risk of bank failure in the long run, business practices that assure sustainable profits with proportionate risk need to be encouraged.
The report is based on the analysis of corporate governance information available in the individual bank’s annual report for the period from 2008-09 to 2017-18. It also says that The Indian banking industry remained reasonably sound from 2008-09 to 2012-13, before the early signs of a decline in asset quality and profitability were observed in 2013-14.
In recent years, private banks have by and large shown an improvement in their soundness position. However, a low level of soundness remains a challenge for public sector banks (PSBs) because the above trend was more pervasive for PSBs.
It also notes that noticeable asymmetries exist in the policy priorities of banks on the dimensions of governance and soundness. Private banks demonstrated relatively better performance in adhering to governance norms pertaining to audit function, followed by risk management and board effectiveness during the study period.