Non - Performing Assets
The
NPAs of commercial banks have soared to a record high causing great
consternation among the concerned authorities. The definition of NPAs which was
originally classified as amounts due and not paid over a period three/four
quarters has gradually been refined and now amounts that are due and not paid within
a quarter of their becoming due is per se classified as NPAs.(Bear with me if I
am wrong on this). NPAs apart from holding money that can be recycled for
productive use also hinder the viability of the banks to a great extent. The
growing figures of NPAs in relation to total advances also reflect badly on the
bank’s assessment of the credit offered or the follow up measures taken. NPAs
cannot be completely avoided as there are factors beyond anybody’s control like
draught, excess rain fall, earthquakes which are natural calamities. Similar
situation can arise in times of war and civil unrest. But, given everything to
be in order, the growing NPAs is a thing to be worried about. In our country
there are two types of borrowers who constitute the major chunk among the NPAs.
The major one is the wilful borrower who has the capacity to pay but shy’s away
from paying hoping to derive better benefits either from Government largesse or
bank’s offer to whittle down the outstanding. The next one are the
beneficiaries of political largesse where the entire loan amount doesn’t reach
the borrower save for small percentage. The intermediaries have swallowed the
major amount. When pressed for payment, these borrowers are willing to pay the
mount that they actually received, but not the amount shown as due from them in
the bank’s books. The rest of the borrowers who fall into the NPA group have
suffered real los in business due to economic, financial and social turmoil
coupled with international vagaries and needs to be supported and helped to get
their operation revive on a solid base. They are not defaulters actually but,
for the situation into which they were driven.
The
BASLE three agreement has come into force in our country from April 1, 2013 and
in this background, keeping a large percentage of NPA,s will be counter-productive.
It is revealed in the recent financial papers, that the commercial banks outstanding
NPA,s have risen very sharply from around 3.2% to nearly 4.3% over the last one
year. When the need of the hour was to reduce the NPAs as much as possible, it’s
going up is something to be worried about. This has obviously prompted the
Ministry of Finance to give a direction to all public sector banks to bring
down their outstanding NPA,s from the current level to 1% of total advances by 31st March 2014. A tall order
and is to be seen how the banks react to this mandate.
Government
also is responsible for this abnormality in the system. Due to political
compulsions, very frequently they announce waiving of principal / interest etc.
Honest borrowers who have paid the dues in time and have no outstanding at the
time of Government announcement become laughing stock in the midst of majority
who derive all the benefits though they are not rightly affected. Once bitten twice shy. These actions of
the Government turn an honest borrower also to default adding to the growing
percentage of NPAs. But, this time the Government seems to be serious and in their
direction have clearly stated that the responsibility of bringing down the
NPA,s rests solely on the shoulders of the lending banks and they can use any
and all the method suitable for the purpose, but the aim is the NPA should come
down to 1%.
Unlike
some private lenders, banks cannot use high handed measures for the recovery.
They have to go through a set procedure. But, these things can be expedited.
The Debt Recovery Tribunal (DRT) also should play a greater part in this to
help the banks. Frequent adjournments only add to the delay and a maximum of
one adjournment only should be allowed. Anyway this is the prerogative of the
Judiciary and we laymen cannot comment on them.
Once
the DRT gives consent for bringing the assets for sale an auction is to be
conducted. Invariably this is a failure and the borrower in collusion with
others can whittle the auction. To over-come this, Government has now directed
that all DRT cleared assets will go through e-auction only. This will enable people living in all parts of the
country to participate and a competitive bid can be received. The influence of
the borrower on the auction itself is greatly minimized. All future auction of
assets by commercial banks will be through this mode only and already 40 listed
banks are gearing themselves to move over to this system. It is hoped that this
works out better and help the commercial banks bring down their NPA,s to at least
2% by the next fiscal end if not to 1% directive given to the public sector
banks by the Ministry of Finance.
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