BBB and Bad Debts

Apropos the news report Interim Mechanism to resolve bad loans in banks (BS Dated 21/05/2016), the need to strengthen the balance sheet of banks with strong credit portfolio devoid of losses on account of bad debts is paramount and the Banks Boards Bureau BBB) is busy in the process of Introducing some measures by the middle of June 2016. According to the BBB Chief “The mechanism in the works would be in the domain of banks and outside the BBB and It would give a lot of comfort to bank decision-makers and would be credible.  Unfortunately, the banks particularly the PSBs are working with lots of social and political compulsions and the commercial considerations are the least giving rise to no professionality in their business approach and this situation has been exploited by one and all to loot banks. Thanks to RBI Governor, the banks real health has been exposed and he wants to fix the problem once for all for bringing in the much needed Financial Stability and deeper credit and bond market in the financial system. The setting up of BBB has added strength and professionalism in the running of banks and with its present approach to find a solution to the burning issue of bad debts, it has added credibility and raised the hopes that the banking system can provide the badly needed financial support at a reasonable cost to industrial, agricultural and all other credit needs to support the economy for its fast and upward journey. The passage of Bankruptcy Code, no doubt would add strength to sort out the recovery of bad loans. The formation of bad debts has got cascading effects on the economy and its stake holders particularly the Government and tax payers and from this angle, any steps to prevent bad debts in banks would be welcome and BBB would make the greatest contribution to the economy and the financial world if banks’ balance sheets are made really strong.   

Dr. T.V.Gopalakrishnan