Prevent formation of bad assets by disciplining banks and borrowers

This refers to your editorial Bad assets blues (Business standard dated 18/4/2015).This problem of banks has been there since evolution of banking and it is all the more in our Public sector banks due to lack of professionalism in the management of credit portfolio among other things. Mismanagement of the economy and inefficient management of the banks reflect in the balance sheets of both the economy and the banks and all the stakeholders except perhaps the bad borrowers suffer in different ways is the ground reality. Volumes have been written and veterans have made all possible comments on the ill effects of the bad loans on the economy and the banks but unfortunately no tangible solution has been attempted to prevent the formation of non performing assets in a professional manner identifying the basic reasons and arriving at some workable solution to improve the banks balance sheets without in anyway affecting the borrowers interests and the needs of the economy. Infrastructure finance has been a major handicap and for this the solution has to be found in deepening the  bond markets to raise long term funds and the banks need to be relieved of funding long term projects with their short term deposits. This may help to a great extent in minimizing the bad loans generation but the ultimate solution to contain formation of NPAs lies in disciplining both the banks and the borrowers for their lack of professionalism in running their businesses and arriving at a solution to prevent formation of bad loans and liquidate such bad loans in case of their inevitability by funds raised from borrowers and banks for their laxity in the conduct of loan portfolios.  

Dr.T.V.Gopalakrishnan