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PSBs recapitalisation should be part of broader package of financial reforms: IMF

Press Trust of India  |  Washington 

The IMF has said that the recapitalisation of India's public sector banks should be part of a broader package of financial reforms to speed up the resolution of their massive non-performing assets, which has attracted attention in the backdrop of the case.

The recent policy reforms to address vulnerabilities in the and corporate sectors in have been significant, said ahead of his visit to

The asset quality review, initiated by the (RBI) in December 2015, prompted banks to take steps to recognise all nonperforming assets and ensure appropriately provisioned balance sheets by March 2017. Other important steps include the new Insolvency and Bankruptcy Code, adopted in May 2016; and more recently, the announcement of a major recapitalisation of India's PSBs, he said.

According to a recent Assocham-Crisil study, India's sector will be saddled with gross non-performing assets (GNPAs) worth a staggering Rs 9.5 lakh crore by March-end, up from Rs 8 lakh crore in the year-ago period.

"While all are welcome steps, we think the PSB recapitalisation should be part of a broader package of financial reforms to speed up the resolution of NPAs, improve PSB governance, reduce the role of the public sector in the financial system, and enhance and practices," Zhang told in an interview.

Zhang, however, did not respond to specific question related to the case of Indian diamond merchants and his uncle Mehul Choksi, who are being investigated for their alleged USD 2 billion swindling of money from the

"We have seen the reports. As a matter of practice, we do not comment on the operations of individual financial institutions. In general terms, what I can say is that we support the authorities' ongoing efforts to strengthen the soundness and resilience of India's financial system," he said.

A team of experts recently conducted an assessment in the context of India's participation in the Financial System Stability Assessment Program (FSAP), he noted.

"The experts found that the RBI has made progress in strengthening supervision since the previous assessment in 2011. For instance, a risk-based supervisory approach has been introduced and Basel III norms have been implemented, as is now increasingly common around the world," Zhang said.

"Nevertheless, the experts recommended legal changes to enable the RBI to extend all the powers currently exercised over private sector banks to public sector ones; in particular, regarding dismissals, mergers, and license revocation," he said.

"Having said that, banks' operational risk management, risk culture, internal control frameworks and external audit function should typically play a central role in preventing fraud," Zhang said in response to a question.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Sun, March 11 2018. 18:45 IST