IASbaba's Daily Current Affairs Analysis
IAS UPSC Prelims and Mains Exam – 25th May 2019
Archives
(MAINS FOCUS)
ECONOMY
TOPIC: General studies 2 and 3
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
- Inclusive growth and issues arising from it.
Resolving NPA Crisis: II
Introduction:
In order to put the slowing economy back on track economic reforms needs to be taken. Reforms in banking must surely be top priority.
- Banks were forced by the RBI and the central government2 to disclose evergreened loans and provision for them.
- A new Bankruptcy Code was legislated to allow lenders to take charge of the resolution process.
Issues remain:
- Operational issues at public sector banks (PSBs).
- Putting in tax payers’ money to keep them afloat.
- Investors and depositors have very little assurance that a similar NPA crisis will not recur in future.
Going forward:
To prevent repetition of the NPA crisis, structural reforms at PSBs are imperative on three counts.
Poor credit appraisal and risk management systems:
- It led banks concentrating their loans in a handful of borrowers. This need drastic overhaul.
- RBI recently imposed tighter curbs on the group-level and firm-level exposures of banks, capping them at 40 per cent and 20 per cent respectively of Tier-1 capital. But such limits cannot substitute for the PSBs’ lack of in-house talent in credit and project appraisal, which needs urgent fixing.
- RBI needs to work on internal early warning systems that leverage analytics to head off credit bubbles too.
Increasing accountability:
- While mis-judgement can be condoned, strict enforcement action needs to be taken against bankers who willingly colluded with corporate borrowers to evergreen loans.
- There’s also need for a thorough overhaul of recruitment policies at PSBs, greater accountability from their top managements and Boards and performance-linked compensation.
Governance reforms:
- Political interference has played an egregious role in diverting bank funds to crony capitalists.
- Fixing this issue requires deep-rooted governance reforms that distance the management and Boards of PSBs from their promoter — the Central government.
- A roadmap for the transfer and gradual dilution of the government shareholding in PSBs is now critical, as is the strengthening of the toothless Bank Boards Bureau.
- RBI on its part needs to work through recent setbacks to the IBC process to put it back on its feet.
Conclusion:
Resolving NPA crisis would help bring back the Indian public’s and depositors’ confidence in banks.
Connecting the dots:
- In order to put the slowing economy back on reforms in banking must surely be top priority. Comment.
Also read: Resolving the NPA crisis
https://iasbaba.com/2019/05/daily-current-affairs-ias-upsc-prelims-and-mains-exam-15th-may-2019/
