Fight Against NPAs

\






























































































































































































































































































































































































Business Economics & Services Team (BEST)

                      Fight Against NPAs


Now the focus has turned on curbing non-performing assets (NPAs)of the public sector banks. Going by the magnitude of NPA- which is currently estimated at Rs 2.43 lakh croe, of  which PSBs account for 35.9 %-the call  has come very late. The nation's assets have sunk into such non productive assets that a resource scarce country cannot afford. But that is a legacy that India has inherited on account of the unholy alliance amng bankers, industry and politicians. Also, it is a moot point what steps  the government is taking for curbing the NPAs in the non PSB sector, which is more than 60%.
It is the not the first time, the alarm bells for NPAs have been pressed.That has been with us for long. Occasionally, the government comes  out with bold steps to curb the NPAs. But mostly that schemes remain in papers evading any serious follow-up  measures.  There are some historical reasons for accumulation of NPAs over a period of time. First and foremost is the absence of  a foolproof system for monitoring sickness. Loans were disbursed to companies without undertaking any proper viablity study of the project. There are cases when people undertake projects on gut feeling that they  can succeed without heading to business norms.
Secondly, the nexus between the lenders and borrowers, which led to sanctioning of loans in an arbitrary manner, mostly driven by the relationships rather than sound prudential norms. Even before reform period such aberrations were rampant. For instance, debt equity ratio facilitated conversion of  lenders money taken as debt were indiscreetly got converted into equities. Preponderance of that culture had taken off the onus cast on the borrowers to repay the money and those who had repaid had often asked for easy rollover of the loan repayment time.   
There is a third category of people   who had indulged in willful default of loans. They skimmed the company of all assets and even sold machinery to make them sick. Once bled the company, they filed for getting the sickness status for the enterprise, which enabled them many advantages, especially moratorium  for repaying  the loan. Some companies even manged to get finance for restructuring companies and also squandered off that funds or diverted to some other activities.   
The fourth reason for mounting of NPAs is of a recent phenomenon , when banks were instructed by the government to give soft loans to corporations to help them fight the slowdown blues. No proper montioring has been done while pump priming resources to these companies. Not many companies have properly put to use the finances.

Now the finance minister and the RBI governor have given a clarion call to the general public to save more and channelize such investments for productive purposes.  The prime Minister also exhorted the general public to lessen their savings in gold and increse on investment portfolios. But that will fall on deaf ear if the investing public is not assured proper return on investment. Yet, it is a good beginning an uncompromising war on NPAs.