Banks need better governance: IMF

Banks need better governance: IMF

Context

The recent instance of fraud in the banking sector has brought to the fore the issue related to governance in banks, especially public sector entities that need to put in place tighter controls and improve their balance sheets, according to a top official of the International Monetary Fund (IMF)

IMF’s deputy directors’ views

• While the asset size is increasing in India, there is a deteriorating trend in terms of asset quality
• The efficiency of the sector can be made better and risk management and culture strengthened
• Even while India had been a leader in terms of growth rates, financial inclusion was a challenge as access to finance had been low compared with other developing countries

What is FSAP?

The Financial Sector Assessment Program (FSAP) is a joint program of the International Monetary Fund and the World Bank

• Launched in 1999 in the wake of the Asian financial crisis, the program brings together Bank and Fund expertise to help countries reduce the likelihood and severity of financial sector crises
• The FSAP provides a comprehensive framework through which assessors and authorities in participating countries can identify financial system vulnerabilities and develop appropriate policy responses

The FSAP follows a three-pronged approach when looking at the country’s financial sector:

1. The soundness of a financial system versus its vulnerabilities and risks that increase the likelihood or potential severity of financial sector crises.
2. A country’s developmental needs in terms of infrastructure, institutions and markets.
3. A country’s compliance with the observance of selected financial sector standards and code