SINGAPORE: With Indian banks now showing signs of weak financial health, urgent steps are needed to prepare a roadmap for sustainable reforms, Vinod Rai, former Comptroller and Auditor General of India, said in a paper.

“Earlier these reforms are implemented, the faster the economy will be able to regenerate,” said Rai, a Distinguished Visiting Research Fellow at the Institute of South Asian Studies (ISAS).

Any lack of confidence of a depositor in a bank is bound to erode the trust that the depositor would have in placing his savings in the bank, he said.

This can have very deleterious effects, as the common man does not understand the complexities of banking. He merely wants his money to be safe in the bank – the bank and the RBI must, consequently, provide that confidence to him, Rai said.

“Finally, it is the responsibility of the RBI’s inspection team to ferret out instances of misdemeanour by the management,” he wrote in the recent ISAS paper.

The scale and magnitude of failures that have surfaced are serious and time is opportune to put in motion a well-structured and widely pervading reform package, Rai added.

It will hit the entrenched hard. It may even upset their cosy business networks; but unless the cancer is exorcised now, Indians may have to forget about of seeing their country become an economic superpower and achieve economic prosperity, Rai warned in the paper “Lessons from the Yes Bank Saga in India”.

The reform package rolled out by the Reserve Bank of India and the government has been appreciated. It has been fairly swift and well structured.

The time is ripe to introduce a stringent package of reforms that should ensure deep-rooted correctives in bank administration, supervision and audit, the former CAG said.

History speaks of so many instances where countries or institutions converted a crisis into an opportunity to reform have taken the path to prosperity, he said.

On the contrary, countries or institutions that kept taking short-term and ad-hoc measures, hoping to implement widespread reforms at a later date, never got to doing so and hence spent all their time lurching from one crisis to another, he pointed out.

India has had a significant number of problems in the financial sector.

“The first were the public sector banks. Then, we had the private sector banks, followed by non-banking financial companies, Infrastructure Leasing & Financial Services (ILFS) and Dewan Housing Finance Corporation Ltd (DHFL).

“And now we also have Jet Airways. So, it is not the financial sector alone,” Rai noted.

Corporate governance must comprehensively cover issues of compliance with the role of ombudsman and whistleblowers well defined. Boards must ensure that balance sheets incorporate all environmental, social and governance parameters and that social accounting is factored in, he stressed.

The scale and magnitude of the failures that have surfaced are serious and time is opportune to put in motion a well-structured and widely pervading reform package, Rai said.

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