The Reserve Bank of India will soon issue draft guidelines on corporate governance in banks and non-banking financial companies (NBFCs). The central bank's latest report on trends and progress in the country's banking sector states that the lack of credit growth in banks is becoming a worry.
As per the report, the financial indicators are improving. While non-performing assets are falling and profits are rising, the unresolved problems are the time to resolve NPAs and the sporadic revelation of frauds.
The biggest worry for the RBI is the banks' reluctance to lend. At a time when all the ratios are improving, they are afraid to lend and the only thing that is growing very well is retail loans. As the banks go on giving retail loans, given the slow growth in the economy, both the demand for and the quality of retail loans will start falling. This could lead to NPAs even in the retail sector. Only better economic growth will help banks overcome these problems.
Regarding NBFCs, there are four pillars to supervise them -- onsite surveillance, offsite surveillance, auditor reports and market intelligence. A fifth pillar, regular interviews with credit rating agencies, auditors and banks that lend to NBFCs, would be added soon.