Friends
In last 15 years, Indian Banks
have tasted huge jump in non- performing assets. This has grown with the growth
in advances which is quite convincing. Currently, NPA are more than Rs. 5.00
Lac Crs. or about 75 billion USD. Actual
figures of NPA and stressed accounts are estimated to cross Rs. 10 Lac Crores,
almost 11% of total loan portfolio.
What went wrong? Why it was not
monitored properly? Is it matter of skill or something else? The answer to all
these questions can be find out within the problem itself. A critical and
unbiased analysis can not only help in understanding the facts but also help in
controlling this for future.
A) Development
in Banking system: In the beginning of this millennium, the competition was
growing and private banks were just attending the age of adolescence. These
banks were flushed with funds, aggressive team and to some extent knowledge.
These banks were infact born out of frustration of the public sector banks who
were dead slow and politically infected. We can’t deny this even today. Also these banks were run by the cream of bankers who were very sharp, intelligent and
aggressive but were frustrated in the PSU Banks. These banks with thin
organization structure and fast decision making process soon overtake many PSU
banks who were just surviving on government support and had become political
shop. Thus the frustration of Bankers
who could not perform in the dull atmosphere of PSU Banks and Exciting plans of
the new banks joined hands together and exploded the market. Every Bank
invented new products to lure the customers to borrow. Very soon private banks
accumulated huge business from the market and this hit to the bottom of the PSU
Banks. Now the turn was of just awakened PSU banks who not only lost the
business but precious manpower too, to grab the market. The PSU Banks joined
the rat race of increasing business without considering the GDP growth of the
country. Every Bank was out to give Year-On- Year Growth of more than 20%, the
pressure mounted at every level and thus the whole system of conservative
appraisal, due diligence, Non-deviation from the set rules and strict adherence
to end use principles got damaged.
Banks started
rewarding Officers i) who could garner more and more business irrespective to
the quality; ii) Who could register
better recovery from the stressed accounts ignoring the fact that certain units
could have been revived; iii) who could earn more and more fees for the organization
even if it was through business executed under conflict of interest; and iv) who could expand the business left, right and
centre without any focused approach.
B) Sudden
Growth in the Economy: Beginning of the millennium also witnessed sudden jump
in the economy. Existing set up was not well equipped to handle the sharp
growth of the globalised Indian economy. All they could understand was to lend
money in the proportion of 3:1 where Equity was only one third of the total loan
and that too in many cases on paper only. No body was ready to listen and understand
the hard fact that lending can not be influenced by emotional or political
pressures. Systems and Procedures were not in place and by the time one could
understand, there was a mountain of NPA before the banks.
C) Political
Compulsions and Corruption: When NDA regained power in 1999, it was very hard
earned by these non congress parties and hence they were aggressive to fuel the
growth. Most of the parliament speeches were wrapped into GDP growth and hence
the large funding was forced upon the bankers. This process further speed up
post 2004 under UPA government. Rampant corruption in appointments and lending
resulted into poor decisions. There was no hope for prudent decisions. In this
situation, the mistakes of wrong funding was quite obvious and hence huge
increase in NPA.
D) Over
Ambitious Entrepreneurs: This is most crucial analysis, either the entrepreneurs
were over ambitious and hence asked money or may be vice versa, but the result
was same. Easy availability of funds or over confidence of lenders in
entrepreneurs too fueled the fire. The cascading effect was in poor appraisal,
fast decision making, poor monitoring and competition to surpass the other
lenders.
Indian bankers
were never equipped to handle the sharp growth as nothing was system driven. It
was more people driven minus poor systems and procedures. Human Resource too
responsible as there was not sufficient training to the lending employees. Personal
habits like Ego, ignorance, over confidence too ignited the process of high
NPA.
Detailed analysis
of all the above major factors will be discussed soon.
CP
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