Private banks' ruckus to hide NPAs, RBI governor says - don't misuse rules

Reserve Bank of India Governor Shaktikanta Das held a meeting with the Board of Directors of the banks yesterday. He raised the issue of problems and potential crisis in corporate governance of banks. The RBI Governor said, In the same meeting, the Reserve Bank Governor clearly said that we are aware of the tactics used by banks to hide bad loans and show profits. Bank boards and management should not create such gaps in governance.

Responsibility of directors to ascertain NPA of bank

Advising the board directors of the banks, the governor said, it is the responsibility of the full-time and non-executive or part-time directors of the bank to ensure that the governance of the bank remains strong.

Use of smart accounting methods by banks

RBI Governor Shaktikanta Das said that RBI has found that banks are using smart accounting methods to better show their financial performance. A sale and buyback of a loan or debt instrument between two lenders is also used to hide the actual condition of a stressed loan.

How do banks deal with NPAs?

RBI Governor Shaktikanta Das said that such cases have come to the notice of RBI before. Throwing light on how this ongoing NPA scam is done, he said that banks buy each other's bad loans, issue debt instruments for loan management. Structured deals from good borrowers to bad borrowers to reduce NPA pressure. Arrange funds for borrowers' obligations using internal or office accounts. Hiding NPAs by giving loans directly or to any subsidiary before the due date to settle old loans. The Governor of the Reserve Bank said that other methods were also adopted after many such cases came to light. He raised the question, who benefits from adopting such methods.