Make banks healthy and professional
The banks particularly 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.Though the cost of funds for banks has of late, come down considerably and deposits have also gone up despite low interest rate and unimaginably deteriorating customer service, banks are finding it extremely difficult to cut the lending rates and find avenues of credit expansion thereby creating a serious mismatch of assets and liabilities. The deposits have gone up substantially thanks to demonetization of high denomination notes of Rs 500 and Rs 1000 but the credit pick up has not been commensurate thereby threatening the very survival of banks in business. 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. The present burden of high level of NPAs other than substandard advances which are on the borderline of bad debts needs to be shifted from the balance sheet creating an escrow account elsewhere supported by the Government bonds exclusively created for the purpose and subscribed by Institutions and Public.. As and when recoveries happen with a vigorous enforcement of remedial measures, these bonds can be liquidated. The need for a healthy and highly professional banking is paramount to give a boost to the economy and the NPAs should not come in the way of banks to expand their business.
The prevention of formation of NPAs is equally important to keep the banks healthy and active in their basic business of raising deposits and advances. Professional approach of banks to their business is the need of the hour to keep them surviving and supporting the economy which is otherwise stagnating for want of timely and cheap credit.
Dr T V Gopalakrishnan
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