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The Big Picture – Tackling the NPA explosion: Privatisation or Bankruptcy Bill

The problem of NPA is more often in news nowadays. On one side with farmers committing suicides due to failure to repay loans and on the other side, 29 PSB writes off nearly 1.14 lakh crore rupees have raised serious concerns. With gross NPA’s at nearly 4.5 lakh crore for the fiscal 2015, the credibility and the way banking sector is working needs to be relooked.

With huge NPA piling up, the banking sector has lost the ability to take back the loans from the customers. The sector which sometimes performs discreetly by giving away huge loans to big corporate houses and for small borrowers via government schemes has failed most of the time in servicing the loans.

Another issue is lack of proper credit assessment. Banks tend to over value the assets before granting the loans. This happens more due to political patronage to vested interests. The lack of trained manpower to handle such risks related to credit assessment is only amplifying the problem.

Way forward

• Banks need to function professionally without any political interference. Government needs to be more proactive in dealing with governance issues related to banks.
• Narasimhan committee which recommended diluting the government shareholding in banks and measures to bring in more diligence to bank governance has been ignored so far. A much awaited political will is necessary to absorb the recommendations given by the committee.
• The issue of recapitalisation cannot be ignored. Government has so far promised banks 75000 crore by 2018 is less than what is needed for full recapitalisation which stands at 1.18 lakh crores. Government needs to be innovative to garner more funds by making strategic disinvestments and by diluting shareholding etc.
• The role of RBI cannot be left out in this discourse. RBI needs to come up with more proactive and stringent guidelines on credit repayment and ensure they are followed by banks.
• The politicisation of banks is the biggest hindrance for effective functioning of banks. Every possible effort must be made to remove functioning of banks from the clutches of Ministry of Finance. Banks should be left to function professionally which not only allows a sustained growth but also put brake to mounting NPA’s.
• Also expediting cases related to insolvency by judiciary has a long way in reducing the impact of NPA’s. The quick passage of bankruptcy bill will help to bring in some air in tackling the NPA menace.