Relook risk management: Letter to BS on Rs 114-billion PNB scam

With reference to “Dump it, sell it, forget it” (February 17), one can understand the public outcry in the recent Punjab National Bank (PNB) scam. Linking fraud with public sector undertaking (PSU) status is not true. We should not forget that banks deal in money, where risk is inherent that can't be eliminated but only mitigated. The big problem with banks in India now is that all the three risks of banking-credit risk, operational risk and market risk-hit the banks almost simultaneously. Banks are plagued with huge non-performing loan, which attributes to credit risk. Recent quarterly results have shown how the bottom line of banks was hit due to hardening of the yield in the third quarter of FY18 and that attributes the market risk.

The recent fraud in PNB, and it is suspected that its contagion will affect several other Indian banks, is a classic example of operational risk faced by banks. We don’t have to go back a long way in history to prove that these risks can equally trouble private banks. In 2007-2008, private banks in the West faced credit crisis and several private banks in the UK and US were closed down. Who can forget the Lehman crisis. On the other hand, among the top 10 banks of the world four are from China. Among them Industrial and Commercial Bank of China is the largest which is state-owned and the Agriculture Bank of China, which is ranked third and is also state-owned. It is possible to have a great bank even with state ownership. PSUs are not motorcycles that are worth dumping, selling and forgetting about. It is time to look deep into the risk management and credit appraisal system in PSU banks.

Ravi Kant, Gurugram

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