RBI Governor Urjit Patel on Tuesday told a parliamentary panel headed by senior Congress leader Veerappa Moily that it's impossible for the central bank to monitor all 1.16 lakh commercial bank branches across India. He said the banks need to improve their internal control system to tackle issues related to frauds and other challenges like asset quality and rising non-performing assets. He said PNB, in its compliance report to the RBI, furnished wrong information on safety measures adopted by the public sector lender.
Patel, however, assured the panel that the NPA crises would be resolved soon as steps were being taken to boost the banking sector.
On the issue of accounting of losses from Rs 14,000-crore PNB fraud involving diamond merchant Nirav Modi, the RBI governor told the Parliament panel that the primary responsibility of risk management rests with the board of directors of Punjab National Bank. He apprised the panel that in case of the PNB scam, all lines of defence had failed, which led to a fraud with such a large value.
He said the RBI had warned the banks to scale up their monitoring process against similar frauds in other banks. The PNB had furnished a compliance report on safety mechanism to the RBI, which turned out to be factually incorrect. "PNB submitted factually false compliance on safety mechanism advised by the RBI," he said.
He also apprised the committee that from 2015 to 2018, as many as 15,000 bank frauds have been reported, which accounted for Rs 75,000 crore.
Interestingly, losses of public sector banks have touched a staggering Rs 87,370 crore during the financial year ended on March 31, 2018, with the fraud-hit Punjab National Bank leading the pack as the biggest loss-maker. Of the 21 state-owned banks, only two banks, Indian Bank and Vijaya Bank, posted profits during 2017-18. All 21 banks had together posted a net profit of Rs 473.72 crore in 2016-17.
The central bank also submitted a background note on the condition of the entire banking sector to the committee, in which it noted that the banking sector was facing major challenges due to stress in asset quality and mounting bad loans, which adversely impacted profitability of banks.
The RBI said the total stressed advances ratio for scheduled commercial banks improved marginally to 11.54 per cent on December 2017 compared to 11.61 per cent in March 2017.