The recent governance issues in India’s banking sector involving ICICI Bank and Axis Bank reiterate the need to improve risk management and maintain strong governance practices, S&P Global Ratings said on Thursday.

“As a number of banks in India confront serious governance and risk issues, the ‘tone at the top’ is crucial. Leadership groups in Indian banks need to ensure that they enhance the risk culture, reputation, and financial strength of banks,” S&P Global Ratings credit analyst Michael Puli said.

The US-based rating agency assesses management’s ability and expertise to grow the business sustainably while rating banks.
“We view governance and transparency in Indian banking as a negative factor,” it said. S&P has ‘BBB-‘ rating with a stable outlook for both Axis Bank and ICICI Bank.

Recently the board of private sector lender Axis Bank had sought RBI nod for the reappointment of managing director and CEO Shikha Sharma for six months ending December 31, 2018. This is after the central bank declined an earlier proposal to give her a three-year term ending June 30, 2021.

According to reports, the RBI’s unwillingness to approve the initial request of three-year term was due to a number of risk management and governance issues that have emerged at the bank over the past year or so. These include a deterioration in asset quality and under-reporting of non-performing loans, S&P said.

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