Reserve Bank of India [Get Quote] on Wednesday underscored the need of having "effective risk control mechanism" and "good governance at top level" in the Indian banking sector in order to prevent any bank-related "fraud".

"Implementation of good governance and effective implementation of risk management techniques are the keys to manage all sorts of risks including credit risk before they pose any threat to the banking system," RBI, Executive Director, V.K. Sharma said during a Bankers' Executive Forum that was held at Chandigarh.

He made this statement during his address after highlighting the instances of infamous banking industry fraud such as Bearing bank of London and Nick Leason case.

While finding 'greed for money' among people as major reason behind frauds and bank failure, Sharma asked banking industry to effectively appraise the borrower before lending money. "Banks should know the intentions of borrower and ability of his repaying capacity before advancing any credit to him in order to prevent any risk in future," he said.

Stressing upon the developing risk sensitivity in the banks, Sharma also said that the implementation of Basel-II norms should not be postponed. "Basel II norms should be implemented by banks within stipulated time," he said.

In spite of having numerous auditors and regulators, scams are still happening. "Because we refuse to learn from past mistakes, these things lead to scams and frauds," he viewed. Sharma also asked banks to plan for extra capital well in advance in order to tackle any liquidity risk in future.

Laying emphasis on inculcating high risk awareness in banking sector, RBI, Regional Director, J Sadakkdulla in his presentation said that the bankers should have internal risk assessment mechanism as part of their risk management practice.

Referring to deficiencies in infrastructure sector, the finance minister said there was about a gap of eight per cent between demand and supply in power sector, but said the gap would be overcome in the next five years.

He said the government would invite bids for two more ultra mega power projects by March 31 this year, adding that two such power projects had already been cleared. "We have no option - we have to overcome this demand supply gap in power," he said.

Admitting that there were about 250 million people living in poverty, finance minister said they could be lifted out of it by ensuring education, access to health care and skills for employment. "We can do more if we use our resources wisely and get the best for every rupee... I find there is so much waste and leakage. If I can plug those leakages, we will roll out these services far more quickly and far more efficiently to the people who need these services," Chidambaram said.

He hoped that abject poverty would be wiped out by 2040 in the country, though most will have homes, work, food, clothing, access to education and medical care well before that period.