Wednesday, August 24, 2011

Rising NPA in Public Sector Banks

Asset quality in public sector banks have been going from bad to worse for last several years, and it is not a new phenomenon. Unfortunately or fortunately management of all banks have been manipulating the figures year after year in close nexus with team of auditors and officials of Reserve Bank of India and that of Banking Division in Ministry of Finance to conceal bad assets. They have put pressure on field official in branches and taught not to improve the quality and take strong initiative to recover the money from bad borrowers but taught only various tactics to conceal bad assets to reduce provisioning towards bad assets as per RBI guidelines.

At corporate level top officials of banks including CMD and ED have used various false and fake pleas such as global recession, interest rate hikes, bad monsoons, natural calamities etc to give various reliefs to bad borrowers instead of tightening the screws to trap bad officials and bad borrowers. 

Top management of bank management have never diagnosed the real causes of bad assets whenever it is found to increase due to some reason or the other. Clever bank management do not want to take action against erring official, corrupt sanctioning official because they themselves are part of dirty game of bad lending. 

This is why bank management have wrongly but willfully and invariably pleaded that if action is taking against credit officers and top executives , credit growth will immensely suffer and they will not be in a position to achieve the target set by Finance Minister.

After complete introduction of Core Banking Solution (CBS) in banks, Reserve bank of India advised banks to calculate bad assets called as Non Performing assets (NPA) on common terminology using advanced technology and not manually . Banks are slowing getting pressure to assess their quality of assets through automated system taking advantage of CBS technology. Since management of banks find now difficult to conceal bad assets under CBS oriented NPA assessment system, total of bad assets is now being exposed in Balance sheet and it has reached a level of 3% of total advances.

It is to be noted here that NPA percentage is still more than what it has been revealed during last few quarters. Still banks have not declared their entire NPA and after taking RBI hidden consent. Of course they are gradually exposing their bad assets and this is why quantum of bad assets has not jumped to highest position in one time but it is rising quarter after quarter.

Officials of RBI, top management of each PSB and official of Ministry of Finance all know very well that actual quantum of bad assets in government banks is far more than 5% of total advances. In more than 25% of three year old branches gross NPA is more than 25% of total advances. There are many such branches where gross NPA is even more than 50% of total advances. 

Clever bank management are trying their best to show minimum percentage of gross NPA by either manipulating the system secretly or by resorting to fresh lending by opening new branches and resorting to fresh bulk lending to big corporate, to real estate sector and to mutual funds so that total advances in banks increases which in turn reduces percentage of Gross NPA compared to Total Advances.

But this story will not help for longer period until there is adequate improvement in quality and moral integrity of credit sanctioning authority , honesty in promotion processes in banks ,improvement in legal machineries which may help in recovery from willful defaulters , tightening of screws on Chartered Accountants , Valuers and official of rating agencies and change in attitude of politicians. Bank management has to increase number of staff in branches, reduce staff at administrative offices and award honest officers by stopping and punishing corrupt officers who were rising in their career through unfair ways and means. 

Till now bank management has not tried to cure the real disease and at the same time government of India have also not improved the quality of legal system and not tried to inculcate good culture in politicians who are using bank loan to enhance their personal wealth and to increase their vote banks.

It is very sad that all the time when proportion of bad assets increases in banks , management of banks accuse global recession, interest rate hike, bad monsoon, natural calamities etc but not punish the real culprit. It is remarkable here that when most of top official have occupied the top post and come through bad routes and when they have themselves created and accumulated bad assets in their banks they are not in a position to punish the real culprit and hence they are searching always some weak scapegoat , some lame excuses and pleading some irrelevant reasons before MOF for deteriorating quality of bad assets in banks.

Million dollar questions is “Who will bell the cat when even officials in RBI and MOF are equally weak and guilty”. System is not corrupt but corruption has become the system in banks. Not only banks but all other government departments including judiciary are also victim of same disease. It is therefore not surprising that public demand led by Anna for strong Lokpal Bill is gaining momentum month after month, day after day and none can stop this.Government can torture Anna, Ramdeo and their followers but cannot stop public revolt without punishing corrupt officials and corrupt politicians.

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