Friends
Carrying forward the discussion
on four major issues responsible for mounting NPAs, let us dig these issues
further. One of the major issue was “Development in Banking System only ” . As
mentioned in my previous article, post liberalization, focus on building up
capability was meant only adding new employees, new branches and adding new
borrowers. Bankers/lenders never
bothered to first build up capacity and then add the business. In fact, it was
other way round where aggressive approach to increase business followed by
building up capability. To be true, still very least investment is made by the
bankers on education and training despite so much hit on the balance sheet. The
visible change is due to computerization or digitalization and not due to
knowledge development. The appraisal system of loans, funding products, Client due
diligence and Project viability studies are still going on the same old
pattern. Prescribed norms of classifying
NPA are too rigid and impractical. Same set of standards being applied on all
kinds of loan despite huge variations in their characters. Lenders should
consider the economic scenario, monsoon situation, too to apply the NPA norms. The
norms should be flexible enough to help the genuine borrowers. Senior employees of Banks presume 100%
knowledge of the finance sector which blocks the knowledge inflow. The Ego of
officers is another serious factor which needs to be handled properly.
As mentioned by me earlier, the
performance parameters should be more quality focused than quantity. Short term
view of business growth has caused lot of damages to the Indian banking system.
As is well known the pressure of achieving targets is too much on the team and
this leads to compromise in the quality of account. Lending banks have to build
up capacity of global standard to sustain in the current market. Unreasonable target
setting by the authorities should be avoided if banks are really serious to
control the NBPAs. It has been widely known fact that every one wanted to reach
the height and to achieve this target are key issues. One team does business without
proper appraisal and poor monitoring to get the promotions and other teams gets
promotion by achieving recovery targets. Most of the business has been achieved
by misusing the office or conflict of interest. Banks themselves became
consultants and advisors too and started
achieving the set targets in all those segments. The expansions are good but
equally dangerous if not handled properly.
In my view there are lot many
gaps and weaknesses are still exists in the banking system which will continue
to generate more and more NPAs. These issues should be addressed properly
before infusion of funds by the Government. Without building capability, the growth in the
banking system will be prone to all kind of drawbacks. However, I agree that
only this factor of development in Banking system is not the sole reason for
mounting NPAs as other reasons are equally responsible for disastrous situation
of NPAs in India.
I shall ponder on the other
issues in my next articles.
CP
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