‘Uneasy with 8.7% NPAs in urban co-op banks’

MUMBAI: RBI Governor Shaktikanta Das on Monday said the central bank is “not comfortable” with the gross non-performing assets ratio of 8.7 per cent in urban cooperative banks (UCBs) and asked them to work towards improving the same.

Addressing directors of UCBs in the financial capital at an RBI-organised conference, Das urged that such lenders should improve the governance standards, avoid related-party transactions and focus on credit risks, among others.

The governor delivered the speech on August 30 but the video was uploaded by the RBI on YouTube on Monday.It can be noted that the UCB sector has been fraught with multiple challenges and also witnessed difficult times in the recent past, like the implosion of the city-headquartered Punjab and Maharashtra Bank.

Das reminded the directors of the UCBs that banks run on depositors and added that protection of the hard-earned money pooled in from the middle class, poor and retirees is far more sacred than going to a temple or a gurdwara.

While the overall picture at an aggregate level looks nice, the situation on GNPAs and capital adequacy is “not at all satisfactory”, Das said.

He said the overall GNPAs have improved to 8.7 per cent, which is “not a good number. It is not a comfortable number even at an aggregate level”.

Scheduled commercial banks’ GNPAs stood at a decadal best level of 3.9 per cent in March 2023 and are widely estimated to improve further.

To manage the scourge of NPAs better, Das suggested that there should be a focus on credit risk management with better underwriting.

He said the RBI has come across instances of conflicts of interest or related party transactions, which need to be avoided.

Similarly, there have been instances of many of the top defaulters being individuals or businesses having the ability to pay, Das said.

The top 20 defaulters account for over 60 per cent of the loan overdue, and focusing on this segment can help improve the overall NPAs, he added.

On the capital adequacy front, he noted that there has been an improvement in the ratios to 16.6 per cent at the end of FY23 from 15.5 per cent a year ago.

Making it clear that he wants to share the RBI’s concerns with the lenders, Das exhorted the UCBs to focus on the quality of governance by paying attention to compliance, risk management and internal audit.

Even big commercial banks are culpable

The RBI has noticed “excessive dominance” by one or two board members even in “big commercial banks” and asked the lenders to desist from such practices. “There should not be an over-dominance or excessive dominance by one or two members of the board, or the chairman or the vice-chairman. We have seen this even in big commercial banks’ wherever we have seen this, we have told the bank that this is not the way,” Das said.

All directors need to be given a chance to speak and a particular director’s say should not be the final one on a matter.

The governor, who made the point while illustrating the importance of a well-functioning board, however, did not elaborate further.