Slacking on bad loans
The sheer scale of bad loan divergences cannot be explained away as some minor disagreements over the recognition of NPAs
Axis Bank Ltd has once again admitted that there is a large gap between its estimate of toxic loans compared with what the Reserve Bank of India (RBI) estimates.
Two other private sector banks—ICICI Bank Ltd and Yes Bank Ltd—made similar disclosures when they announced their first-quarter results a few months ago.
The first response should have come internally. It is disturbing that the boards of these banks have maintained radio silence even after all this. The managements of these banks have not been asked the tough questions that good corporate governance demands. The sheer scale of the accounting gaps cannot be explained away as some minor disagreements over the recognition of bad loans.
Is it time for RBI and the Securities and Exchange Board of India to step in? In the past few years, many banks in developed markets have been asked to pay stiff fines for crossing regulatory limits. That need not be the only solution, but it is worth asking whether regulators need to move when company boards prefer to stay silent.