The need to give a kick
start to the economy by making the PSBs healthy and highly professional in their
very business of raising deposits and lending money is paramount and very
urgent and any delay in reviving the banks can
badly affect their very survival in business leave alone supporting the economy
which is otherwise stagnating for want of timely and cheap credit. The banks
have to shift all their very badly identified and un provided for NPAs as on 31st
March 2017 to an escrow account to be maintained by the Government and they need to
be very intensively followed up with all legal and other measures to recover the dues at
the earliest..
Since the PSBs are
becoming weak by day due to mismanagement of advances
portfolio resulting in the accumulation of non performing advances
and stoppage of of expansion of fresh credit for productive purposes,
there is an equally and urgent need to make them highly professional and commercial in their management of credit and risk to
ensure that the fresh formation of NPAs does not occur any more and if at all
they recur, they need to be liquidated and taken care of by banks and bad
borrowers themselves through some self correcting mechanism in place. A small
levy of penalty based on banks and borrowers’ conduct of loan accounts will do
the trick. It is rather unfortunate to observe that though the cost of funds for
banks has come down considerably thanks to sudden spurt in deposits at low
interest rates after demonetization of high denomination notes, banks are
finding it extremely difficult to cut the lending rates and find avenues
of credit expansion thereby creating a serious uneconomical mismatch
of assets and liabilities. The solution for slow pick up of credit lies in
changing the business model and to realign the assets side removing the
NPAs from the balance sheets and build up of new short term credit and less of
infrastructure loans. Long term bonds which can take care of infrastructure finance can also rescue both the banks and the Government to find resources. If these bonds
are made tax free, public subscription is also guaranteed without any limit.
What is needed now is that
the Government should keep away from banks, make the Banks Boards Bureau more
accountable in its expected role of individual bank’s performance, make the RBI
to intensify its regulation and supervision over formation of bad debts and
improve the quality of loan assets. After all what the economy needs is improvement in its overall
performance in terms of better macro economic fundamentals like investment,
production, consumption savings, employment and equitable distribution of
wealth and for that a strong banking
system is sine qua non.
Dr T V Gopalakrishnan
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