Diagonise the disease properly and then presribe the medicine

The reasons behind the huge accumulation of bad debts  in PSBs need to be correctly understood. There are no institutions to finance the infrastructure projects of the country and the banks are forced to lend on a long term basis for which they have no expertise or long term funds. Asset liability Mismatch , lack of adequate cash flows to recycle the funds are affecting the banks very badly. Besides these, the interference  from the Government through various ways also compels the banks to act unprofessionally knowingly well that such an approach will land the banks  in trouble but they have no choice. There is also no bond market to take care of the long term needs of large corporates engaged in the build up of infrastructure very badly needed by the country for its economic growth. The banks financing long term projects do not have an opportunity to avail of the take out Finance facility and their funds are locked up.

The other reason is  the appointment of Directors and top management executives  in banks based more on extraneous considerations other than merit and their commitments are not to safeguard the banks funds but to safeguard the interests of their masters. Further the typical public sector character of being indifferent and non involvement in the work by the human resources behind the institutions cause such a damage which can be quantified only in terms of Non performing loans. Lack of Corporate Governance and laxity of regulation and supervision account for the other reasons behiind the Non performing  loans. The only solution perhaps is to discipline both the banks and the borrowers and educate them to conduct the loan portfolio in a very professional manner by having a very close monitoring and self correcting mechanism by way of penalty both from banks and borrowers for all their wrong doings from the moment the loans are sanctioned till they are liquidated. Prevention is always better than cure. Both anesthetic  and deep surgery approach are painful and are the last resorts after the disease is well established. The other solution can be allowing the banks to raise long term resources with special regulatory features and tax incentives..  

Dr T V Gopalakrishnan