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T. R. Radhakrishnan


Finance Minister Piyush Goyal said that the Government has accepted a report submitted by a committee of bankers led by Punjab National Bank Chairman Mr. Sunil Mehta to set up an Asset Management Company (AMC) for the resolution of loans. They will also set up Alternate Investment Funds to raise money to back the AMC. The committee has formulated a 5 point strategy namely “PROJECT SASHAKT” to tackle the Non-Performing Assets by way of (i) SME resolution approach (ii) bank-led resolution approach (iii) AMC / AIF led resolution approach (iv) NCLT / IBC approach and (v) asset-trading platform. Are the strategies recommended by the Committee not available presently? Is there anything new in the strategy and approach which would produce immediate result within the mandated 180 days?  Why the impact of NPA is more visible and fateful among the public sector banks than the private sector banks including foreign banks?

What the report of the committee and the strategy adopted to deal with the NPA problems does convey?  Is it not an abject confirmation and admission of truth that the banks are incapable of solving the Non-performing Asset menace? Does it also not affirm that the bank managements are shirking their responsibility and accountability for resolving the NPA threats and shifting them to another entity which if viewed dispassionately and without prejudice is nothing but dereliction of their duties and responsibilities? It is likely that the same committee members who recommended such steps or the members from their banking fraternity may be asked to manage and govern the newly formed Asset Management Company and Alternate Investment Funds. If so, what they could not do in the banking sector, will they be able to achieve success in their new venture? It is nothing but wishful thinking and a mirage in a dream.

The financial reforms initiated in the 90s have brought a change in the approach to banking with the introduction of prudential norms. The concept of Non-Performing Assets poses a great challenge. But the challenge is the fait accompli of the change that is taking place globally. Can the change in the banking sector be changed? No. The harsh realities of the change have to be addressed realistically and consciously. Hence, what is practical and possible is to change the attitude and approach of the banks to meet the demands of change. Instead if the attempt is to change the edifice of the banks into some other form, it is not going to produce any tangible result because the plan of action is not addressing the root cause but only the symptom of the malady and the result will be predictable. The only way the banks can face the challenge is to understand the implications of the changes taking place and take steps to adapt to a new thinking to face them so that the challenges of change can be met with to produce the desired result. . Every change has its own impact, either positive or negative. Therefore it is essential to differentiate between a positive change and a negative change. The only way to successfully meet the change is to adapt, assimilate, and absorb new methods and approaches to the needs of the change within the banking system and not outside.

What is required is a paradigm shift in the management of credit in the sphere of (i) Credit appraisal and assessment leading to realistic cash flow (2) introducing effective credit delivery and credit monitoring without any let up and complacency (3) recovery with a human touch and above all (iv) the bank management be allowed to take bold decisions without the interference of the government and to remove the existing fear psychosis and to view the decisions without prejudice and pragmatically. The decision taken cannot be viewed purely from the point of view of criminal intentions and personal gains based on mere suspicion unless and until the malafide intentions are conclusively proved without any doubt. The change should be supported by a robust management information system to constantly monitor the conduct of the account for any irregularities to take immediate action to arrest the deteriorating trend, if any.  The paradigm shift is in the involvement of borrower and other stake holders like the guarantors and mortgagors etc which is not undertaken at present in every aspect of credit sanction and monitoring and conducting the account from the day when the bank accepts the application for bank facility. The higher authorities should also find quality time to spend with borrowers at regular intervals to inculcate the habit of financial discipline and good governance and educating the customers regarding the importance of understanding the interdependence of the bank and the borrower and other stake holders and mutual trust among them.

Most of the time while finding solutions to the NPA issues, the more important aspect of human resources is being side tracked and concentration is more on the technology, rules and regulations and systems and procedures. Ultimately whatever that is being planned and programmed are to be implemented by the employees. Hence, the basic approach should also be to include creating effective and efficient human resources to successfully implement the plans and programmes and system and procedures to arrest the deteriorating trend in the management of NPA accounts. The human resources include the floor level employees and officers at the branch where the actual transactions take place, the concerned higher authorities, and also the top level decision makers. These specialized employees of all categories with the qualities of tact and talent should posses’ analytical ability, logical thinking, and pragmatic approach to find practical solutions and who are also capable of taking timely decisions. More importantly, the risk management system which includes diversion of funds, conversion of funds, frauds, malfeasance, nonfeasance and the audit system in the banks is to be revamped and toned up to meet the challenging requirements of credit monitoring to prevent the account being classified as NPA from the very early stage itself. RBI has admitted while undertaking a study on slippage of NPA accounts that “invariably, by the time banks start their efforts to get involved in a revival process; it’s too late to retrieve the situation – both in terms of rehabilitation of the project and recovery of bank’s dues.”

RBI has issued many circulars on the management of NPA accounts and their instructions and guidelines are mandatory for the banks to comply with failing which the persons who are responsible for the noncompliance are liable to be punished. RBI also issued circulars on compliance functions of banks. Yet banks violate such compliance with impunity and many times banks have been fined for their non compliance of RBI instructions. Many practical suggestions can be given on effective management of credit to minimize the incidents of accounts becoming NPA which will take many pages. The objective of this article is to emphasize that any strategy and structural changes must be done within the banking system and procedures to strengthen the credit sanctioning and monitoring which should involve both bank and the borrower and the stake holders equally to create an atmosphere of trust and understanding of their respective roles in the nation building activities and welfare of the society through which they also can promote their interest keeping their account in good health to develop and progress their business, nationally and internationally, to face the competitiveness and challenges in the national and global markets.  It is the inevitable need that when the public confidence and trust in banking is eroding and the profitability is reaching its abyss at its lowest ebb, the Government and the Banking Sector have to strengthen the banking operations to restore its standing and credibility among the public and its international ratings.   What is required is quality leadership to make things happen. The quality of leadership is the ability to recognize a problem before it becomes an emergency and lies in guiding others to success by ensuring that everyone is performing at their best, doing the work they are pledged to do and doing it well.

(The author invites comments from readers and he can be contacted through his e-mail id trrk1941@gmail.com or mobile – 9229248048)

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  1. sanjay Dongre says:

    the adaptation that we talk about, will take a few decades to settle in amongst the bank staff.

    we have so very got used to the concept of asset backed lending that pure credit appraisal on the basis of project evaluation is an alien skill that is missing amongst say 99 percent of bankers.

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July 2024