Indian banks must boost governance, says S&P
“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. He added that while rating lenders, S&P assesses the management’s ability and expertise to grow the business sustainably.
The S&P report comes in the wake of Axis Bank asking the Reserve Bank of India (RBI) to approve the reappointment of MD and CEO Shikha Sharma for six months ending December 31, 2018. This, after the central bank declined an earlier proposal to give her a three-year term ending June 30, 2021. “According to media reports, the RBI’s unwillingness to approve the initial request of three years was due to a number of risk-management and governance issues that have emerged at the bank over the past year or so. These include a deterioration in asset quality and under-reporting of non-performing loans,” S&P said.
In ICICI Bank, Chanda Kochhar, the MD and CEO, is currently under investigation for an alleged conflict of interest associated with the lender’s loan to the Videocon Group in 2012. “The Central Bureau of Investigation is conducting a preliminary enquiry into whether the CEO’s husband, Deepak Kochhar, benefited from the bank’s decision to participate in the consortium loan,” S&P said.
Both the lenders have a BBB- rating with a stable outlook. According to the rating agency, if allegations against the ICICI Bank management prove to be true, they could hit its reputation and expose it to legal and financial risk. “On December 21, 2017, we revised down our assessment of Axis Bank’s stand-alone 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’ risk management as weaker than that of private sector peer HDFC Bank,” S&P said.The rating agency has noted that Axis Bank continues to take steps to recognise and resolve asset quality issues and improve provisioning levels. It has also raised capital to support these provisions. In addition, Axis Bank recently restructured its operating controls. “The bank has restructured the reporting lines so that operational controls now report to a central point rather than the relevant business heads. Smooth transition and continuity in management will be important for the bank, in our view,” S&P said.
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