Bad Loans.
This refers to your Edit 'Elementary Watson',Easy Money ,Bad loans (ET dt,28/01/10). The observation that easy money made available by the banks to borrowers to go in for non viable business ventures is also a reason, among other things, for the increase observed in the Gross non-performing assets of banks is hard to digest. On the contrary, Non performing loans generally arise largely on account of high interest rates when banks are tempted to lend ignoring the risks and viability of projects. The present increase in NPAs is largely on account of economic slow down.
NPA s are inevitable in banking business as banks deal in money and with human resources entangled in business and economic activities which are part of fast changing business cycles. The only permanent solution to contain formation of NPAs and minimise the damages that they can cause to all stake holders of banks including borrowers is to have a fund built up within the banks by making the borrowers to contribute based on their performance rating. The banks and if necessary the Regulator and the Government can also contribute towards this fund which will emerge as a cushion to discipline borrowers and at the same time strengthen the banks' balance sheet. The Government can avoid contributing to the capital of banks which they often do.
The problem of NPAs has been there since the evolution of banking and the solution for it has to come from bankers and the borrowers themselves.
Dr.T.V.Gopalakrishnan
This appeared in ET,30/01/10 (edited version)
2 comments:
The rise in NPAs is not only due to the reasons mentioned. More often it is seen due to the nexus between the bank officials and the borrower. The laxity of noticing early warning signals in a borrowal account is to be blamed on the bank officials. This was brought out in many of the inspection notes put up by inspectors of RBI when banks / branches are taken up for inspection.
NPAs are on account of several reasons and thier assessment is also perfect.There are umpteen ways to hide NPAs and it is simply not practical to correctly assess NPAs as long as there are different types of loans and accounting practices.For more information a reference can be made to the book on Management of Non-performing Assets published by Indian Institute of Banking and Finance.
Post a Comment