Before finding an answer to the question whether the Indian Banks are finally set on a course to overcome theNPA mess, we need to appreciate that the problem itself is deep rooted. There is no magic wand that can remove this tumor from the Indian banking system. The process would essentially be slow and painful though everyone in authority now agrees that it must start, sooner than later.
The root causes of NPA
Legal cobwebs, systemic infirmities, consortium lending, political nexus, fudging, and everyone’s responsibility becoming nobody’s responsibility are at the root of the NPA mess. One should also delve deeper into the circumstances that prompted bank nationalization. Even granting for once, that the objectives of bank nationalization were laudable, time and again, the political bosses had the ability to dictate terms to the banks.
The role of chartered accountants
The Satyam computers episode dealt a body blow to the ineptitude these esteemed professionals who were expected to be the guardians of public wealth. How some of the best names in the profession failed to uphold their professional integrity is now etched in the financial history of the nation. Thankfully, the incident has apparently helped in putting enhanced levels of responsibility into the profession.
The reckless pursuit of competition and weak autonomy in lending decisions has also contributed in a significant measure to the current imbroglio. The corporate political nexus promoted this attitude among the lenders and exploited it to the hilt to their own advantage.
Here is an interesting article from “The Hindu” outlining public debt owed by some of the biggest names in Indian corporate fraternity and how they plan to liquidate some of their precious assets to bring down their debt burden. The entire article, though long, is worth every word and anyone concerned with the subject of NPAs must give a close reading to understand the enormity of the situation.
The story of once the biggest name in the Indian airspace must be fresh in the minds of most readers. The debacle grounded not just the aircraft but also the future of scores of ancillary businesses and the distraught employees of the airline as well as these supporting enterprises.
Political will is the need of the hour
The Modi government has thrown enough hints to indicate that the old ways of borrowing must change and borrowers have to find the means to start the process of cleaning up their balance sheets, sooner than later. Thankfully, the political will to catch the bull by its horns, appear to be in place. The days to come will show how this translates into the desired results.
The Reserve Bank of India has initiated a slew of measures to stem the rot
The Reserve Bank of India has put in place a series of measures to contain this cancerous ailment. Restructuring stressed assets, taking control of ailing businesses by converting part of the loan into equity are among these measures. Nevertheless, in a majority of the cases, the stressed assets can cover only a fraction of the debt and that will present the biggest hurdle for the Central Bank. Going forward, the patient will need major surgery than cosmetic surgery if the Indian banking system is to claw back to good health.
The process of cleaning up the Indian banking system is bound to have its share of pains. Large projects do need large scale funding and this can come only from the banking system. While the borrowers would be expected to evidence a significantly higher level of responsibility in meeting their repayment obligations in time, the lenders will improve their control and mechanism, to arrest the onset of fresh tumors.
As the Indian banking system goes through a metamorphosis, growth on the expected trajectory will be a casualty and that is a price the nation has to pay.