Lasting Solution to NPAs
The only solution to Bad loans in banks is to Prevent Formation of bad loans
than to find ways and means to recover the bad loans by spending more than the loans
themselves involving tax payers’ money. Now what is identified as bad loans
needs to be frozen and recovered by enforcing the existing laws of the land
without any fear or favor and bringing in the Bankruptcy Code at the earliest.
Loans turn bad because of several reasons and the major reason is the non
professional approach of banks to favor the unqualified borrowers and encourage
them ignoring the basic principles of lending and disciplining them from the
day the loans are sanctioned. Instead of the suggested proposal to have a Stressed
Fund by the Ministry of Finance and the RBI, is it not ideal to have a Stressed Assets Prevention Fund by levying a penalty both
from the erring banks and borrowers minimise generation of bad debts and liquidate the bad debts in case formed by the banks and the borrwers themselves without disturbing the other stakeholderrs? This fund over a period would be more than
the generation of bad loans and would be helpful to liquidate the bad loans
without affecting the budgetary resources and depositors’ interests. The
solution in the long run should be to discipline the borrowers, educate them to
run the business on professional lines with ethics and make the banks also
accountable and sensitive to the trusts and responsibilities vested in them. In this regard the practical solution suggested in one of the books Viz Management of Non Performing Loans in Public Sector banks published by the Indian Institution of Banking and Finance way back in 2004 can bring in discipline among the borrowers and banks as well and find the required funds to liquidate the bad bebts without taxing the tax payers and depositors. The very acceptance of the solution eludes even the debatable stage despite having it been widely circulated among the top bankers , RBI and the Finance Ministry is a mystery.The bad debts accummulate due to ethical deficit among other things is a fact which cannot be ignored any more and the solution lies only in effective Governace.
Dr T V Gopalakrishnan