Find own resources to recapitalize the state owned banks banks.
Apropos your editorial How to recapitalize
State Owned banks ( Et dated 2/3/16) which are steep in the red because of heavy accumulation of
bad debts due to banks’ own lack of professionalism and economic slow down, it
would be better and ideal to find own resources to recapitalize and prevent formation
of bad debts in future. What the banks have to do is to freeze the bad debts
and separate them from the balance sheets as on a date fixed and keep them
under a Special designated escrow accounts and resort to recovery measures with
all available legal remedies as of today and the proposed bankruptcy laws as
and when passed. Government should provide only the guarantee equivalent to the
bad assets which can be adjusted against the recoveries. To prevent future
formation of bad debts and their liquidation, the banks should not depend on
any of its stakeholders and manage to contain the bad debts formation with
stringent credit discipline in the conduct of its advances portfolio and
ensuring equally enforceable discipline among the borrowers by educating them
on the need to manage the borrowed funds with utmost caution and generate
adequate cash flows to service the debts and its repayments regularly. In the
event of deviation from the envisaged discipline on the part of the banks and
the borrowers, the RBI as a regulator should impose penalty on both and
maintain a fund separately to liquidate the NPAs at periodical intervals. The stakeholders of
PSBs particularly the Government, the tax payers, the depositors and others
should be permanently spared in rescuing the banks from bad debts because of
their own non performance and that of the borrowers. The NPA menace calls for a
lasting self correcting mechanism without depending on others.
Dr T V Gopalakrishnan
( This letter appeared in ET dated 3/3/2016)
( This letter appeared in ET dated 3/3/2016)
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