By Sajad Bazaz 

It’s not unprecedented that most of the customers are most of the times in complaining mood against the banks. But it’s unprecedented that the managements of the banks, including their regulator, are nowadays equally in complaining mood. They are unhappy with the borrowers, including some prime borrowers, for not repaying the bank its dues on time. The situation is alarming as the very existence of some key players in the banking industry is at stake.

Stitch in time....
Stitch in time….

Let me come straight to the point. Indian banking industry is in shambles. Default in loan repayments has remained rampant, despite the fact that the regulator, Reserve Bank of India (RBI), had set in motion a series of measures to arrest the menace of mounting bad loans. But the regulator simply failed as the banks over a period of time only accumulated their bad loans. At the moment, bad loans worth about Rs 4 lakh crore exist in the Indian banking industry.

These bad loans, popularly known as non-performing assets (NPAs), may rise further in the initial months of 2016 as the RBI has reportedly identified top 150 defaulters and asked banks to make additional provisions for those loans. Among the big banks, the bad loans of India’s largest bank, State Bank of India, stand at Rs. 60,712 crore, Bank of India Rs 29,893 crore, Bank of Baroda Rs 23,710 crore and Indian Overseas Bank with bad loans worth Rs 19,423 crore.

The RBI has asked the banks to make adequate provisions for visibly stressed loans. This is immediately going to impact December and the March quarters this fiscal. In it’s industry-wide asset quality review in December, the RBI hopes that bad loans would be adequately recognised and provided for review by March 2017.

This means some banks will not be in a position to lend much and this squeezing could hurt the economy. Some weak banks would be left with no option but to merge with some other banks.

Banks are themselves to be blamed for this situation. They haven’t shown interest in cleaning the mess existing in their asset quality. Most of them resorted to ever greening and delayed recognition of bad loans. For all these years, reports indicated hidden mess behind the declared financial results in most of the so-called ‘strong banks’..

We have to understand that NPAs do not happen overnight. Loans are sanctioned after a thorough appraisal of the proposal and credit worthiness of the borrower. More importantly, after the sanction, there is this duty enjoined on the lender to monitor whether the amount is being utilised for the appropriate purpose. Thus, those who approve the project report carelessly and fail to monitor such loans, should ideally also be held responsible for the loans turning into NPAs.

We have also observed that certain changes in the policies of the government have proved the greatest reasons for creation of bad loans. The borrower is lured by the state and central governments, promising him all kinds of facilities such as land, power, infrastructure, raw materials, subsidies, etc. But unfortunately, many of these promises are often a mirage, contributing a great deal to the birth of NPAs.

We cannot overlook the fact that a stitch in time saves nine. A regular and systematic follow-up of loan portfolio will help the banks to keep the borrowing unit on their alertness and guide them to rectify their mistakes. This would also be a helping hand in tiding over their tight times. Normally, such close follow-up programs are conspicuous by their absence. In the result, the borrowing units ignore payment of their dues to the banks.

(The views are of the author & not the institution he works for)


This means some banks will not be in a position to lend much and this squeezing could hurt the economy. Some weak banks would be left with no option but to merge with some other banks.


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