K C Chakrabarty slams reporting standards of banks

There is nothing new in a government-owned bank facing profit pressures due to provisioning immediately after a chairman retires. What is new, however, is the Reserve Bank of India (RBI) expressing its displeasure over this ‘legacy’ in public.

Without naming any individual or organisation, RBI Deputy Governor K C Chakrabarty on Monday said, “Reporting has to be credible. You see our banks…when the chairman retires, profit declines. If we don’t make the system credible and create a standard, people will report anything.”

“Reporting should not be according to the chairmen, but according to the books. So, we need to improve the standard of reporting and examination. Whenever one goes from financial reporting to non-financial reporting, the challenges increase. If, in financial reporting, you are not able to bring in integrity, how would you do so in non-financial reporting? That’s the issue,” Chakrabarty said.

 

State Bank of India (SBI), had, under new chairman Pratip Chaudhuri, last month announced its results for the fourth quarter of 2010-11 and had reported its lowest quarterly profit in more than a decade, owing to high provisioning. SBI's total provisions rose 82.10 per cent to Rs 6,059 crore and provisioning for bad loans rose to Rs 3,264 crore.

Chakrabarty also criticised various organisations which reward banks having high net interest margins (NIMs). “Bank with the highest NIMs get best bank awards. Banks are in intermediation business; if their net interest margins are high, it means their cost of intermediation is high. How can you give them the best bank award?” he asked.