Banking crisis in India- failure of Governance and regulation
The health of banking sector of a country is synonymous with health of the economy of that country. Indian Banking sector has been under stress since the global financial crisis of 2008. However, the reasons of this crisis are more internal than external. If not corrected, this can take down the entire Indian economy.
Governance:
Government Intervention in appointment- Appointments at the top level in public sector banks experience government intervention. Although this has been checked to some extent through BBB, a lot more independence is still required to ensure an accountable and effective management in PSBs
Risk management- Standardisation of Risk management norms is very slow in the banking space. RBI has recently recommended appointing separate independent directors for risk management.
Audit- Lack of accountability of auditors has resulted in false reporting of position of banks. NPAs of Public sector banks are an outcome of evergreening, combined with auditors failure to record the same.
Regulation:
The Banking sector is still waiting to see good regulatory laws and agencies so that frauds can be unearthed and NPAs can be recovered at the earliest. Although IBBI, BBB, SARFAESI and DRT have made a dent, the sector needs more teeth to counter big financial frauds.
Global events like Asian Crisis, the global financial crisis of 2008 and the great depression have taught us one thing- they emanate from the banking sector and end with failure of the banking sector.
If India wants to create a safe and booming economy, it needs to create a healthy banking sector.