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Opaque foreign investors in Indian Banks make me a bit nervous. Our paper "Why Banks Hide Losses", looks at reasons behind NPA divergence (hidden losses) in Indian Banks after the asset quality review by the RBI.
@dugalira @FinMinIndia @SubramanianKri @RBI
#YesBank
1/n
Two factors stand out: (i) higher the foreign institutional investors in a bank, higher the hiding,
(ii) higher the managerial comp, especially linked to reported NPA/profits number, higher the hiding.
Here is the paper: papers.ssrn.com/sol3/papers.cf…

2/n
FIIs are not good monitors of Indian banks. They substitute lower monitoring with high powered incentive contracts. Bank managers respond to high powered incentive contracts by reporting higher profits, unfortunately often by hiding losses. 3/n
Next, round of investments in these banks must take into account these effects that come from lack of monitoring and distorted incentives. Additionally, we must focus on better disclosure policies.n/n
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