The article has captured very well the
traps that Rajan may have to encounter to discharge his functions. The
Government's agenda is a hidden risk.
The fudging of banks' balance sheet has been going on for years and the
regulators, auditors and all stake holders are aware of it and doing
nothing seriously to prevent it or avoid it. These Non Performing
Advances (NPAs) caused basically due to borrowers' failure and slow down
of the economy increase year after year, but thanks to banks'
provisioning and regulators' forbearance in permitting restructuring
they are shown at tolerable and acceptable levels. But the cost of these
NPAs are ultimately borne by all stakeholders other than bad borrowers
and unfortunately by the common tax payers. There is a limit to
penalise the innocent tax payers for some borrowers' flamboyancy,
extravagance and total unconcern for public money. Unless and until
banks introduce a self correcting mechanism through grading of borrowers
and levy a penalty based on poor rating in the conduct of loan
accounts, this menace of NPAs will be a burden on tax payers, and all
other stakeholders of banks and the economy. In this context, the
practical suggestion given in the book on Management of Non performing
advances which carries a foreword from Dr C. Rangarajan former Chairman 12th Finance Commission and present Chairman, PMEAC is worth an
attempt.Dr C Rangarajan has observed in his foreword that the author of
the book has made several suggestions to contain the growth of NPAs.One
suggestion is for the borrowers and lenders to contribute to a common
fund called Precautionary Margin Reserve Fund.He has added that“ It is
only an efficient banking system which can fulfill the socio-economic
goals set for them.An aspect of improving efficiency is the containment
of NPAs” Dr Rajan’s remark that such borrowers cannot expect the banks
to recapitalize for their shortcomings is really commendable and it
needs to be pursued in letter and spirit.The list for Dr Rajan is very
long and hope he will live upto the great expectations notwithstanding
the rough places in the level playing fields.
The fudging of banks' balance sheet has been going on for years and the regulators, auditors and all stake holders are aware of it and doing nothing seriously to prevent it or avoid it. These Non Performing Advances (NPAs) caused basically due to borrowers' failure and slow down of the economy increase year after year, but thanks to banks' provisioning and regulators' forbearance in permitting restructuring they are shown at tolerable and acceptable levels. But the cost of these NPAs are ultimately borne by all stakeholders other than bad borrowers and unfortunately by the common tax payers. There is a limit to penalise the innocent tax payers for some borrowers' flamboyancy, extravagance and total unconcern for public money. Unless and until banks introduce a self correcting mechanism through grading of borrowers and levy a penalty based on poor rating in the conduct of loan accounts, this menace of NPAs will be a burden on tax payers, and all other stakeholders of banks and the economy. In this context, the practical suggestion given in the book on Management of Non performing advances which carries a foreword from Dr C. Rangarajan former Chairman 12th Finance Commission and present Chairman, PMEAC is worth an attempt.Dr C Rangarajan has observed in his foreword that the author of the book has made several suggestions to contain the growth of NPAs.One suggestion is for the borrowers and lenders to contribute to a common fund called Precautionary Margin Reserve Fund.He has added that“ It is only an efficient banking system which can fulfill the socio-economic goals set for them.An aspect of improving efficiency is the containment of NPAs” Dr Rajan’s remark that such borrowers cannot expect the banks to recapitalize for their shortcomings is really commendable and it needs to be pursued in letter and spirit.The list for Dr Rajan is very long and hope he will live upto the great expectations notwithstanding the rough places in the level playing fields.