Drawing lessons from the global financial meltdown, Finance Minister Pranab Mukherjee today asked banks to focus on credit quality and finetune risk management mechanisms.
“Credit quality assumes greater significance (in the current scenario). Maintaining capital adequacy and risk management are also important (to avert a crisis),” Mukherjee said at a function here.
Highly leveraged banks across the world created problems of financial stability, he said transferring of risks beyond the reach of central banks led to the global financial turmoil.
He also highlighted overconfidence of financial institutions in their liquidity condition, lack of tranparency in operations and misaligned incentives leading to deterioration in asset quality as the prime reasons of crisis.
Noting that there are signs of revival in major world economies, Mukherjee said banks should seek opportunities in the market in the times of financial crisis.