The new Non Performing Assets (NPA) Rules of RBI announced recently seems to be apparently to make the books of the Banks reflect the actual underlying asset quality but in the short term the NPA provisioning in the short term would get bad ,if not worse, in the short term. (Assuming that there are no more such instances of NIRAGATE)
But I have some open musings on the matter to the regulator :
- Is NPA in banks an operational risk, which is inherent, that the Bank has to face and try to mitigate or is it a disease which is like cancer which has to be totally eradicated by administering chemo therapy ?
- When you administer chemo , would it not eradicate all the cells including the good cells ?
- Each loan asset has peculiar issues and each one is to be treated differently and promulgating a single fit for all diseases may not be the right approach.
- By enforcing the new rules, RBI has tacitly accepted the fact that ever greening of the assets (worst kept secret of PSBs and perhaps of corporate private sector Banks as well) of the banks were going on and would it not lead us to the conclusion that the NPA figures given so for to the public consumption are false and misrepresented figures?
- In the present scenario of paucity of private investment , overcapacity and lower credit demand , is it not akin to beating a man who is already down and gasping for breath ?
- Would the lifeline extended by the Government for recapitalisation of public sector banks amounting to Rs. 2.11 trillion go for a toss as the level of NPA is likely to shoot up if the new NPA rules are to be implemented?
- Does this mean that the earlier restructuring methods SDR, S4A, JLF etc., are all failed policies and are there any empirical evidences for the same?
- The new rules have given so much importance to credit rating agencies and is it warranted to place so much faith on the credit rating agencies as the performances of such agencies in the past have nothing much to write about.
- No doubt the new rules would bring in some discipline on honouring the debt servicing in time and at the same time would it not lead to a situation where in larger number of accounts be referred to IBC process because of very strict time lines which eventually would lead to more number of corporate companies going into liquidation thereby killing the entrepreneurial skills of the country?
- Even accepting the fact that there would be greater transparency due to the introduction of weekly reporting of defaults beyond Rs.5.00 crores to RBI’s database of CRILC (Central Repository of Information on Large Credits) , there can be still issues on the quality of the information that is reported to the regulator and what sort of checks and balances are going to be in place is anybody’s guess.
- In conclusion, it has to be said that the regulatory tolerance is one reason due to which we are burdened with the huge pile up of more than Rs. 9 lakh crores of NPAs and the elephant in the room has at last been identified and the prescription for eliminating the same seems to me not convincing and may lead to further retardation of growth more particularly in MSME sector.
(Author V. Ramkumar is a Company Secretary In Practice from Coimbatore)