A lasting solution to arrest and prevent the formation of NPAs in banks.Better late than never.

The banks in general and PSBs in particular are in the business of looting depositors and tax payers money in a systematic manner and the politicians and,bureaucrats become very handy to enable the loot. Even Mr Atal Bihari Vajpayee the Former Prime Minister has openly stated in the late 1990s that NPAs are nothing but  a loot This is known to all but as long as the depositors,tax payers among others  can bear the burden silently, why the loot cannot go on is the approach  pursued all these years and the periodical bail out of banks are resorted to when the situation is going beyond control and the cracks are felt in the economic growth The solution lies in disciplining the banks' management and the borrowers and for that the Regulator has to be totally independent and made efficient to deal with them unbiasedly without any political and Government interference A lasting solution to contain the formation of NPAs was suggested in  the year 2004 in a book Management of NPAs in PSBs published by Indian Institute of Banking and Finance but it was conveniently ignored   despite the fact that the book was based on  Ph d thesis and carried a foreword from none other than the former RBI Governor and former Chairman Prime Ministers Economic Advisory Council Dr C Rangarajan. Unfortunately, intentionally or unintentionally  the suggestion was not even considered to be debated openly, leave alone  considered for implementation on a trial basis  although it received lots of appreciation and was recommended for fair trial by the examiners of the thesis in public interest.The solution was very simple and pragmatic and had it been implemented then, the NPA accumulation could have been greatly contained and managed without resorting to bail out of banks with tax payers money.The book offered a solution to discipline the borrowers and the banks in their management of loans taking into consideration the ups and downs in the economy due to genuine reasons of slow down if any based on political economic social and technological changes beyond the control of banks and borrowers.The other stakeholders of the economy Viz the Government, shareholders of banks, the investors and the public at large could have been the major beneficiaries and the banking system would have become strong and the twin balance sheet problem of banks  and corporates would not have been an issue as of today. It could have been a win win situation for all.

 This book it seems is available even now in amazon .com

Dr T V Gopalakrishnan

(This comment in a modified manner has appeared in Indian Express dated 31/10/2017 against the article Recapitalisation of banks)

    

 Camouflaging NPAs and inflating the profits is very common in all banks and this was the reason  the Global Trust Bank had to close down and had to be merged with Oriental Bank of commerce in the year 2004. The banks auditors and management are hand in glove with each other in window dressing of banks balance sheets and this seldom gets detected or if get noticed get ignored often. The stakeholders have absolutely no clue of what happens and RBI's findings seldom get reported or made transparent. What has happened in Axis Bank may be true for almost all the banks and prudence demands that all banks' financial position with RBI's divergence if any should be made transparent for the benefit of all stakeholders. Besides, how the banks fix lending rates to various corporate borrowers , retail borrowers and to what extent the policy rates have been actually transmitted into the final lending rates of banks also should be made transparent for the benefit of investors. To what  extent the lending rates if NPAs are maintained at a reasonable level can be reduced also should be indicated in banks balance sheets as and when published.

        

      Dr T V Gopalakrishnan

      ( This comment was given in Money Life against the article Axis Bank tumbles over 9% as asset quality worsens dated 18/10/2017).    

Make banks the performing assets.

The best and workable plan to produce results and to put back  the economy  on the revival track is to free the  public sector banks from the clutches of the Government and the bureaucrats. Recognise the fact that these  banks are being killed by the Government and the bad corporate Borrowers and they are the worst non performing assets in the economy as of today. They even seem to have forgotten their basic functions of mobilisation of deposits and deployment of the  funds  for the growth of the economy through making loans and investments for productive purposes.They drive away the customers with poor service and exorbitant service charges. Added to this, the tax on the interest income keep  away the small savers and they turn to other modes of savings encouraging even the informal and undesirable economic activities having undesirable social implications Also make  RBI independent in letter and spirit and make it accountable to the parliament..Without the support of sound banking and healthy financial system the economy cannot grow is a reality and it would be wise for the Government to realise this and act accordingly.

Dr T V Gopalakrishnan 

(This comment is in  response to an article Working on a plan to rebuild the capacity of the banking sector that appeared in Business line dated 13/10/17).