The chief of India’s biggest bank called for an industry-wide review of risk controls in day-to-day operations, comparing a $2 billion fraud at one of his rivals to the 1995 Barings Plc rogue trading debacle that ended the 233-year-old British merchant bank’s independence.“The Punjab National Bank fiasco is something similar to the fall of Barings Bank, where one trader and his misadventure brings down the whole bank,” Rajnish Kumar, chairman of State Bank of India, said in an interview at his Mumbai office on Tuesday. “But at the same time it also is a pointer that there is need for relooking at the risk governance architecture.”Kumar predicts that Asia’s third-largest economy will continue to grow strongly, demand for credit will increase and Indian bond yields will “stabilize” after rising to a two-year high as the global recovery gains strength. It had plunged to a 25-year low late in 2016 as lenders grapple with the second-highest bad-loan ratio among big economies.Fitch Ratings and Moody’s Investors Service have also placed PNB’s ratings on review for possible downgrade. While Moody’s says the PNB fraud is “ idiosyncratic” and there’s nothing to prove that such illegal practices are widespread across India’s banking sector, analyst Alka Anbarasu said in an email that PNB will need high provisioning to tide over the problem.“Credit risk is a known devil which at worst you might underestimate,” Kumar said. “But if you don’t take care of your operational risks, it can hit you very hard on the face when least expected.”

Source: Economic Times February 28, 2018 07:34 UTC