BoB incident a one-off, not a systemic failure, says Sinha

The Finance Ministry on Wednesday said the recent Bank of Baroda incident was a “one-off” episode and does not reflect any systemic failure in the financial setup.

Emerging from a three-hour-long meeting with chief executives of public sector banks, Minister of State for Finance Jayant Sinha sought to allay fears of a systemic collapse in the banking system in the wake of several fraudulent incidents coming to the fore.

Addressing the media, Sinha said the government was monitoring the situation and that all bank governance issues, including risk management practices, were being closely monitored.

He admitted that there were occasions when non-official directors (government nominees) were not attending board meetings of public sector banks, but quickly added that this situation has been corrected.

The Finance Ministry also discussed with chief executives of public sector banks certain burning issues, including poor asset quality, governance and compliance-related issues affecting the sector. At a high-level meeting chaired by Sinha, the issue of non-core assets and whether they should be disposed of in the commercial interests of the banks to improve capital adequacy was also discussed.

Sinha clarified that it was finally up to the bank boards to decide on the sale of non-core assets and that the government was only looking to discuss the issue.

The discussions also covered existing foreign branches of PSBs. “How can the best value be realised from such investments and the possible role of the government was also taken up,” a statement issued after the meeting said. On the issue of poor asset quality, the banks clarified that the problem may continue for two to three quarters before their situation improves. Sinha is understood to have advised the banks to make judicious use of their capital.

On the governance front, issues that were discussed include both structure, appointment of directors, functioning of board-level committees and measures to improve the decision-making process of the board. Risk management practices were also discussed.