Shiban Khaibri
Banks’ loans are their assets and for sustenance, they must be repaid with interest on monthly, quarterly, half yearly basis depending upon the nature of the loan sanctioned, its end use being of paramount importance. In other words, in Banking parlance, these loans or the assets must be performing ones or in a position to pay interest to the lender, of course from the incomes derived or generated after utilization of these loans by the borrowers and any mismanagement in these loans lead to what is called a non performing asset (NPA) from the Banker’s view. Therefore, the instalment of the principle and /or its interest should not remain what we call past due for a specified period of time. Proper assets yielding and a very negligible percentage of non performing to performing assets constitute the backbone of the strength of a commercial Bank. It must , as a natural corollary, concern all Banks that there should be recoveries in NPA accounts to the maximum and there is of course a proper monitoring at not only branch levels but at regional, zonal, central levels of the Banks’ machinery under the overall control and follow-up by the Head offices. Ninety days is the maximum limit of time, crossing which by a single day, makes the account to be classified as Non Performing , of course with relaxed norms for core agriculture sector linking with two harvest seasons but not exceeding two half years.
Imagine when any loan goes bad by default in payment during the specified period after the loan becomes due for repayment depending upon the particular type of facility, and its “health” deteriorates from standard to sub-standard to doubtful and to finally a loss asset and is written off, the same is being done at the cost of the income of the lender bank bringing about a tremendous pressure on its incomes starting process of which is provisioning for the ensuing NPA account. Though there are numerous causes and reasons of the loan accounts becoming doubtful of recovery or going bad and that being purely academic in nature is not the point of discussion in these lines. One of them, however, is the political aspect, in the hope that small loans especially to hard core priority sector like agriculture, government sponsored and small retail, micro enterprises, would be written off by the Banks at the behest of the governments in power as usually in election manifestoes, this type of promise is made by many contesting Political Parties. The ensuing elections usually are the “opportune weather” to employ such vote earning gimmick. Indirectly, it is interference by a non technical entity into a purely technical aspect. The system, on the other hand, provides hardly any mechanism as foolproof to judge who willfully did not come forward to honour the terms and conditions of the sanction of the advance facilities and who for genuine causes, could not keep the promise to pay “on demand”. Of course, lending Banks are provided funds by the government of such waiver of loans, usually on deferred basis or in instalments but that does affect banks in more ways than one.
NPA accounts and their mounting not only has a telling effect on the functioning of the banks but over the economy of the country as well. A segment of bank customers usually, the depositors could get better returns on their deposits if NPA would have been of negligible proportion and in many sectors , banks could lend at comfortable rates as well for the borrowers as against at competitive rates to offset the burden on account of the menace of NPA accounts. Liquidity problem faced by the banks limits their advances portfolio from being more intensive. It is noteworthy and a cause of concern that the percentage of NPA accounts stood at touching 6% with stressed accounts or assets at 13.3%. Has the need risen to pump in more capital into those banks, as an incentive, who show better results on returns on equity and on their assets with a continued vision of otherwise conserving it and utilizing in a better form ? That in other words means tremendous efforts at grass root levels by these banks to affect recoveries in more NPA accounts and prevent other performing accounts from any slippage to lower category of their respective health.
It may look unbelievable that as much as Rs.1.14 lac crore of bad loans have been written off by most of the public sector banks during the last three years. There was a steep rise of 53%in the write offs in the last fiscal alone. The exercise, mainly aimed at carving a balance sheet in a more clean form by these banks. The figures as on March 31, 2015 show the written off amount at Rs. 52550 crore which shows an increase of nearly 53% over the previous fiscal. Gross non – performing assets as on March 2015 rose to Rs. 2,67,100 crore. If there is any major concern confronting the Banks in the country, it is centering round how to fight the mounting NPAs and not only the Reserve Bank of India but the central government too is concerned about the problem and various methodologies are employed so as to have these banks come up with cleaner Balance Sheets, the time limit given is up to March 2017. As mentioned in the foregoing lines, removing NPAs by writing them off, as a cleansing drive, as per prevalent accounting standards, entails tremendous pressure on profitability which can be overcome in phased manner in the long run especially when avenues of earnings have undergone changes as they have more or less become limited. The Governor of the Reserve Bank of India , however, has a very positive outlook in so far as availability of ” enough capital” being there for the Banks. The present Finance Minister too has been more than optimistic and positive in “resolving” the issue by promising the Public Sector Banks his full support in the form of capital infusion as and when needed. It may be recalled that the government last year had carved out a plan named as “Indradanush” with a view to inject an amount of Rs. 70000 crore in these banks, spread over four years (this year around Rs. 25000 crore) and that these Banks were required also to go public to raise an amount of over 1.1 lac crore to meet their capital requirement. In the past, to keep a cushion against implementing of what is called “prudential norms ” of assets classification and provisioning , markets provided good source of capital .
The questions often raised are that politicians very often spend public money for non productive purposes and bankers too though possessing all the requisite financial knowledge and acumen, find many a time criticism on this ground. Any political Party in power cannot take any liberty with the all technical and professional banking system and diluting norms, if not mishandling, about bank finances must be stopped. Loan schemes at retail levels for self employed artisans, small scale industrial units, cottage and village industries, rural and urban poverty alleviation schemes are quite prone to fall in the NPA category due to various reasons , a few of them being like need to have very proper selection at sponsorship levels, political patronage, misuse of funds or end use being defeated, non availability of supporting or collateral security and lengthy and cumbersome judicial recourse. Targets oriented finances with follow up of achieving a high percentage of sanctions at the banking levels though aimed at helping the beneficiaries does not, at times match with very strict appraisal when in most of the cases, securities provided to the banks are in the form of the assets alone made out of these loans. Collateral securities are usually never asked for in government sponsored schemes and even in other priority sectors like agriculture and small scale industrial units, with exception of higher limits sanctioned. There is the need of more governmental support to recover these sponsored bad loans.
In our state, the total amount of credit sanctioned during 2015 stood at Rs.17000 crore and outstanding advances were Rs.37000 crore with NPAs of banks being substantial. The realizing of charged assets without intervention of courts through Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act is not applicable here and banks operating in the state are eager to have it fast and need all support from the state government till the time the state Assembly passes it. The impairment of assets of the banks (NPAs) pose a danger to the healthy functioning of the banks and unless the government extends its full support in settling of bad loans and discourages political interference in using banking system for liberal lending and loan waiver incentives immediately at elections and even thereafter, the banking system was prone to be found wanting in emerging stronger.
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