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How boards of directors of PSU and private banks can be made more responsible

How boards of directors of PSU and private banks can be made more responsible

Finance
By M DamodaranYears ago, during an impassioned discussion on banking, especially lending practices, a friend, in a moment of excitement, coined a new word — creditability. The rest of us laughed. Recent developments seem to indicate that he was spot on. Creditability, a combination of creditworthiness and credibility, implying thereby the ability to repay and the willingness to repay, seems to have been a missing ingredient in the decision-making process in several banks. The focus of this piece is, however, not the credibility of the borrower but the credibility of bank boards. Corporate governance theory rests on the foundation that the Board of Directors is the custodian of the interests of all stakeholders. Simply stated, its role, and also its responsibility, is to keep management hon
The reason India's banks show massive credit offtake before the end of a fiscal

The reason India's banks show massive credit offtake before the end of a fiscal

Finance
KOLKATA: Indian banks have reported credit offtake of a massive Rs 2.76 lakh crore in the last fortnight of FY18, Reserve Bank of India data showed. There is a possible catch though. It's unlikely that the demand for bank loans has suddenly risen to the roof as the data suggested. It's perhaps the usual dressing up of balance sheet before the close of the fiscal known as window dressing in financial parlance. "This credit offtake data does not reflect the demand for bank loans. It's the year-end phenomenon where everybody pushes up their balance sheet," said Madan Sabnavis, chief economist at CARE Ratings. Credit offtake during the preceding fortnight was about Rs 31,000 crore. The last fortnight credit figure was Rs 40000 crore less than what it was in the corresponding fortnight in FY17,...
Banks Board Bureau has some key suggestions for PSBs

Banks Board Bureau has some key suggestions for PSBs

Finance
The Banks Board Bureau (BBB), headed by Vinod Rai, completes two years on March 31. The government says it has no plans to scrap the bureau but there is no clarity on its role going ahead. BBB has released a compendium of its recommendations on reforms at public sector banks (PSBs) in a report that also cites a lack of engagement with the agency by the government. Here are some of its key suggestions:APPOINTMENTS* Ownership-neutral guidelines for appointment to boards of banks * Boards should be empowered to appoint part-time/non-executive directors COMPENSATION*Delink bank compensation from those of civil servants; introduce performance-based compensation * Short-term variable salary component * Long-term component of stock options PERFORMANCE ASSESSMENT* Relative performance rating (RPR...
Banks Board Bureau backs RBI, says govt still to act on its recommendations on PSBs

Banks Board Bureau backs RBI, says govt still to act on its recommendations on PSBs

Finance
NEW DELHI: Days before its term ends, the Banks Board Bureau (BBB), led by former comptroller and auditor general Vinod Rai, has said that several of its recommendations were lying with the government and pitched for widening its mandate and greater dialogue over restructuring of public sector banks (PSBs). It also pointed out that the RBI does not have powers to regulate PSBs the way it does with private banks. The statement from BBB, in a report made public on Monday, is in line with the recent stance taken by RBI governor Urjit Patel, who had suggested that the regulator did not have sufficient powers to regulate public sector players, something that the gover nment has contested. “Everyone wants more powers saying they do not have enough. The only power available to us is to appoint
Corporate banks in a world of pain

Corporate banks in a world of pain

Finance
By R Balachandran Avid readers of history will recall Emile Zola’s open letter to the President of France titled Jáccuse (“I accuse” in French) in the Dreyfus affair, accusing members of the army, judiciary et al in the wrongful conviction of Alfred Dreyfus, in an espionage case. The letter published on the first page of LÁurore a Paris newspaper, electrified and divided the nation and was the first case in modern history when media and public opinion played a pivotal role in correcting a gross injustice. In Láffaire PNB such accusations have been made in the media against all involved, viz. the chief protagonist safely ensconced abroad now, the political establishment current and previous, management and operations staff of the bank, auditors, regulators, and banks that extende