Banks need to improve risk management: S&P

By: | Published: April 13, 2018 3:02 AM

The decision came after news reports said the Reserve Bank of India (RBI) had rejected the bank’s proposal of a three-year extension for her, ending on June 30, 2021.

S&P Global Ratings on Thursday said the recent governance issues in India’s banking sector reiterate the need for banks to improve risk management and maintain strong governance processes, practices and systems.

S&P Global Ratings on Thursday said the recent governance issues in India’s banking sector reiterate the need for banks to improve risk management and maintain strong governance processes, practices and systems. “As a number of banks in India confront serious governance and risk issues, the ‘tone at the top’ is crucial. Leadership groups in Indian banks need to ensure that they enhance the risk culture, reputation, and financial strength of banks,” said S&P Global Ratings credit analyst Michael Puli. S&P said while rating banks, it assesses management’s ability and expertise to grow the business sustainably. “We view governance and transparency in Indian banking as a negative factor. This is similar to many other emerging markets,” S&P said in the statement. S&P has ‘BBB-’ rating with a stable outlook for both Axis Bank and ICICI Bank. The global rating agency’s statement comes in the wake of the recent controversies surrounding Axis Bank and ICICI Bank.

Earlier this week Axis Bank’s chief executive Shikha Sharma had asked the bank’s board to shorten her extended next term which begins on June 1. The decision came after news reports said the Reserve Bank of India (RBI) had rejected the bank’s proposal of a three-year extension for her, ending on June 30, 2021. According to media reports, the RBI’s unwillingness to approve the initial request for three years was due to risk management and governance issues that had emerged at the bank over the past year. These include a deterioration in asset quality and under-reporting of non-performing loans. Last year Securities and Exchange Board of India (SEBI), had asked the bank to strengthen its internal processes and systems after the regulator noticed leakage of unpublished price-sensitive information relating to its financial results on Whatsapp groups.

Chanda Kochhar, the managing director and CEO of ICICI Bank, India’s largest private sector bank, is currently under investigation for an alleged conflict of interest associated with the bank’s loan to the Videocon group in 2012. The Central Bureau of Investigation is conducting a preliminary inquiry into whether the CEO’s husband, Deepak Kochhar, benefitted from the bank’s decision to participate in the consortium loan. S&P had on 21 December 2017, revised down the assessment of Axis Bank’s standalone creditworthiness to reflect higher risks associated with asset quality and under-reporting of non-performing loans. “While the effect of our assessment is the same as ICICI Bank, we assess Axis Bank’s risk management as weaker than that of private sector peer HDFC Bank,” S&P said.

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