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Last Updated : Nov 22, 2019 09:09 PM IST | Source: Moneycontrol.com

Banks should not delay recognition of losses, RBI Deputy Governor Vishwanathan says

Vishwanathan said that these losses, arising out of frauds, bad loans and credit risks that are deferred or spread out over a period of time, reflect that their risk governance is weak and may lead to banks taking risks beyond their appetite.

The Reserve Bank of India (RBI) wants the country's lenders to disclose more in terms of bad loans and frauds, and immediately account for losses arising out of such situations rather than defer the impact over a period of time, Deputy Governor NS Vishwanathan said on November 22.

"In the past, we had a situation where the additional NPAs assessed by the RBI were the matter of information between the RBI and the inspected bank. That was not being made public," he said, adding that the regulator made it mandatory to disclose such divergences in the annual report.

Vishwanathan also said that banks need to go beyond what is required under regulatory norms. "The efforts should be to disclose more than disclose less, except what you cannot disclose legally," Vishwanathan said.

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Last week, the markets regulator made it mandatory for listed companies to disclose defaults to the public as it considers it to be price sensitive information and the RBI agrees with it, Vishwanathan said.

Vishwanathan said that these losses, arising out of frauds, bad loans and credit risks that are deferred or spread out over a period of time, reflect that their risk governance is weak and may lead to banks taking risks beyond their appetite.

"One of the reasons for risk management to not be as strong as it should be would be when there is a possibility of delaying the recognition of loss," Vishwanathan said, adding that such losses should be identified and accounted for immediately.

He said that many times there is a delay in the recognition of bad loans and frauds. Moreover there is a delay in the reporting of frauds after recognition too.

Vishwananthan said that many times the regulator is approached with requests to defer such losses and that the best way to deal with crisis is not to defer the problem but to address them immediately, as they continue to fester if delayed.

"When there is an increase in the interest rate, the loss in the capital of investments, many a times there are requests for that to be deferred, to be made in installments. But when there are treasury profits, they are taken immediately," Vishwanathan said.

The banking regulator is working to improve the guidelines on corporate governance, he said, adding that the norms will be put in public domain for feedback.

 

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First Published on Nov 22, 2019 08:58 pm
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