Bad debts are nothing but an open loot

5:25 Scheme scheme is an officially permissible evergreening of long term advances which helps banks to sanction fresh loans and camouflage bad loans. In good old days, there was a system of scruitiny of large accounts by the RBI and banks were taken to task when the accounts were found sticky and non recoverable. With liberalisation of regulation and relaxation of supervion, the accountability for wrong doings has been given a go bye and entertainment of bad loans has been an accepted practice as they can be easily covered up. Sanctioning of abinitio bad loans is a known truth and they will eventually appear as NonPerforming and  after a few years they  got written of. The Costs incurred by banks to maintain bad loabns in their books of accounts by way of supervsion of bad loans, legal expenses, insurance and maintenance of the assets of large borrwoers and final write off of loans if systematically calculated , would be a mind boggling figure and unfortunately the tax payers and the depositors are made to bear the brunt. The issue of bad loans, the reasons behind their generation, how they distort banks balance sheets, how they affect the transmission of RBI's monetary policy , how they affect the cost of funds, the profitability, the morale of honest staff, etc if studied would give a great shock and there cant be any justification to keep the bad debts growing year after year under some pretext or other. Time has come to have a practical solution to prevent the formation of bad debts and nip in the bud itself the reasons behind the bad debts formation by bringing in strict discipline both on the bankers and the borropwers. The loot of money through bad debts needs to be arrested completely with immediate effect and this is possible only by being strict right from the appraisal onwards till the recovery of loans on an ongoing basis and by building up sufficient reserves to liquidate bad debts in case of any by levying a fees for wrong doings both on the part of borrowers and lenders. Ethical deficit crept into the system can be eradicated only with strict punishment and penalty and this needs to be attempted without fear or favour. Will it happen in our scheme of things? It is high time the tax payers and depositors raise their voice against formation of bad debts in banks and seek justice as they are the ultimate losers because of bad debts in the banks.

Dr T V Gopalakrishnan

(This comment appeared in Money lIfe dated 29/9/15).