Improving governance in banks (Krishnamurthy Subramanian, South Asia Monitor)

The recent sudden surge in disclosed non-performing assets (NPAs) of public sector banks in India has resulted in strong public outrage. As usual, popular opinion and media analysis, which is influenced by availability bias, seems to blame the greedy industrialists entirely for the mess. Unfortunately, lynch mob mentality is influencing public discourse in this regard. While industrialists must certainly be brought to book, bank management and bank processes seem to have been absolved of responsibility. In fact, the government is infusing more capital in the hands of the same banks that have created the present mess. Our research suggests that capital infusions must be preceded by significant governance changes in the banks. Otherwise, such capital infusions would be tantamount to putting in good taxpayer money after bad.

http://southasiamonitor.org/detail.php?type=govd&nid=16075