The move of The All India Bank Employees’ Association (AIBEA) for naming 5,610 willful defaulters, who collectively defrauded public sector and private sector banks in India of a staggering amount of Rs 58,792 crore as on March 2016 is welcome. According to AIBEA, the bad loans of public sector banks have jumped by almost 10 times since 2002 from Rs 54,673 crore to Rs 5,39,995 crore for 2016. The defaulters should not be allowed to hold any public post or engaged in economic activity, as punishment, till they come clean from such default.
Half of the Nation’s wealth is held by a few among them and they say they have no money to repay. It is true a car loan or education loan defaulter is treated very shabbily by lenders but corporates left untouched. With mounting public pressure to act against willful defaulters, this will help in creating fear among the defaulters to pay dues, and also creates fears among new borrowers and make them to be prompt. The graph of India’s bad loans is much worse than the banks are willing to admit. A growing economy needs industry friendly asset quality norms. Willful defaulters have resources to pay. They cannot be treated with kids’ gloves. RBI Governor Raghuram Rajan has also articulated the need for surgical action to retrieve the health of the industry. The floating debris of NPAs on the surface must not divert our attention from lurking systemic reefs under the banking system.
The problem of NPAs has secured an important place not only in the realm of regulatory policy discussion in banking, but also in general public discussions on the safety and soundness of banks and financial institutions. Managing the loan portfolio to minimise bad loans is, therefore, fundamentally important for a financial institution in today’s extremely competitive and market driven business environment. There is an urgent need to prepare specialized teams who can deal with the recovery and for reducing the further NPAs in banks. Avoidance of loan losses is one of the pre occupations of management of banks. In fact, it is the level of NPAs which to a great extent differentiate between a good and a bad bank. In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade. It is a fact that the government also exerts pressure to prevent bank managements from taking punitive measures for recovery, which is also one of the greatest drawbacks of bank nationalisation. Diminishing growth rates for credit with rising NPAs are not good news for the banking system in general. Measures need to be put in place to arrest this downward slide, and the deceleration of lending is definitely not the answer. A strong banking sector is important for a flourishing economy. There should be a monitoring agency to ensure that the directions of the RBI are obeyed scrupulously.
Vinod Chandrashekhar Dixit
(The views expressed by the author in the article are his/her own.)