During the meeting with Chiefs of Banks, our Finance Minister Mr. Arun Jaitley has discussed various points of importance and stressed on recovery of dues from defaulters to clean their balance sheet. The gross NPAs of public sector banks were at six per cent at the end of June, up from 5.2 per cent in March and there is no doubt that gross NPA in the quarter ended September 2015 will further go above six percent.. Further ,according to RBI , stressed asset which is total of gross NPA and standard restructured advances, as a percentage of gross advances moved up to 11.1 per cent as on March 2015 and it has crossed 12 percent in many banks as compared to 9.2 per cent two years ago.
Public sector banks share a disproportionate burden of these stress. Bankers highlighted six sectors that were facing maximum stress --iron and steel, textile, power, sugar, aluminium and construction.The Reserve Bank of India (RBI), in its financial stability report, has also cited five sub-sectors that were undergoing maximum stress, which are infrastructure, iron and steel, textiles, mining (including coal) and aviation.
Finance Minister said non-performing assets of Indian banks were at an ‘unacceptable’ level but the situation is expected to improve as the government and the central bank were taking steps to relieve stress in various sectors. He said that the health of the public sector banks was a key subject. The problem of NPA is undoubtedly to some extent a carried over problem of the past but it continues to persist. And that problem relates to the unacceptable level of NPAs.
The meeting was attended by the Chiefs of the public sector banks as well as Secretaries from various ministries including micro, small and medium enterprises, agriculture, textiles, and rural development.The Finance Minister expressed hope that the reforms announced in the power sector will relieve the problems with the distribution companies.
The government is also in the process of framing a bankruptcy code which is aimed to tackle willful default and a draft paper was recently released.Regarding the issue of willful defaulters Finance Minister has said that the lenders have the required powers and autonomy to deal with them. And bankruptcy law, when passed, will increase the banks’ abilities to get failed creditors to exit. The government is planning to table the Bankruptcy Bill in the winter session of the Parliament.
In my opinion even if the bankruptcy law is passed , bank management will not be in a position to improve volume of recovery.There are many laws in our existing law books to deal with recovery of dues from defaulters, Banks may file certificate cases in district courts , they may file cases in Debt Recovery Tribunals (DRT) , they may file cases against High Courts and Supreme Court and they may use SERFAECI act to take possession of assets of defaulting companies to recover their dues. But unfortunately all these institutions and laws meant for helping banks in recovery have proved ineffective . Ineffectiveness may be due to large scale corruption in the judiciary or due to lack of efficient manpower or lack of coordination among various organs of judiciary and administration or it may be due to in adequate manpower and inadequate infrastructure to deal with number of bank cases.
Lacs of cases filed by banks against small defaulters have been pending in various offices of Certificate Officers in various districts for years and decades. Because state government either keep these post vacant or give additional charge to some other incompetent officers who do not have time and proper knowledge about bank loans to deal with gigantic number of such cases or inefficient and corrupt officers are given charge of such posts who bargain with defaulting borrowers for personal gain and cause huge loss to banks by delaying recovery on flimsy ground for years together.
Similarly DRTs all over the country are not working properly and effectively. In may DRTs, they are not having Presiding Officers for months and years or officers assigned this duty hold dual charge and unable to discharge duty sincerely and devotedly. There are many such officers in these DRTs who are so much corrupt and inefficient that cases are not decided for years or these officers give orders in favour of defaulting borrowers.
Similar is the fate of SERFACIE act which is facing huge hurdles in effective execution for the purpose of recovery of dues from defaulters. This is why process of recovery from defaulters is too slow to help banks in reducing burden of bad debts. Majority of high value borrowers against whom banks have filed cases in DRT or enforced SERFACEI act for recovery have approached High Court to get stay and then got success in managing to defer the hearing for an indefinite period and thus put hurdles before banks in recovery of dues from willful defaulters.
To add fuel to fire , government of various parties during last three decades have propagated and irrigated bad culture of compromise and writing off of bad loans. Politicians use banks for political advantage and hence they sometimes announce loan waiver schemes and some other time, they build pressure on bank management to reduce burden of bad debts by compromise settlement and thus banks are constrained to sacrifice a large chunk of bad loans to clean their balance sheet, willingly or unwillingly and rightly or wrongly . In course of such exercise, many bad borrowers get success in buying various bank officials and get their loan either fully written off or sacrificed large chunk of dues. In this way they together cause huge loss to bank by writing off of entire loan or by sacrificing major portion of bad loans.
Now FM Jaitley is telling bankers that they are free to devise their ways to recover the dues from defaulters. Such advice seems to me as totally nonsensical. When all hands and legs of bank officials are bound with iron chains, the utterance of freedom become a ridiculous word. Bankers are actually free to give loan to any Tom, Dick And Herry either at their own or under pressure of higher bosses, local musclemen or politicians. Bankers are free to write off bad loans of bad borrowers or sacrifice bank's good money to please bad borrowers. To add fuel to fire , banks are forced to undertake non-banking activities like insurance, stock trading,portfolio management etc. Due to this bankers though earn a few crore of rupees in commission but cause loss to hundreds of crores of loan given to bad borrowers. There is a proverb " Gau markar Juta Dan" which means in english as "Penny wise pound Foolish".
Bankers are free to recruit any person in any post and promote them at any time. But none of these freedom has served bank's interest and volume of bad debts has been consistently increasing year after year. Several Finance Ministers of past government and FM of present government have many times expressed their concern for rising bad debts in PS banks during last ten years and more. Every quarter Ministers and RBI officials promise to take appropriate action to stop rising trend in Non Performing assets and unfortunately volume of bad debts in banks have gone up and up every quarter. Because none of FMs and non of RBI officials ever took the matter seriously . They always thought it easier to infuse fresh capital in ailing banks than to cure their sickness. It is taxpayers money which is easily available and in their control and therefore the use it always to hid sickness of banks and to hide corruption of bank officials and politicians. Politicians in general use taxpayers money as charity to distribute to whom they like , strictly as per their whims and fancies only.
Last but not the least, during last decade , quality of lending has deteriorated year after year and this is why inspite of efforts for recovery taken by bankers during last few years has failed to contain rising figure of bad debts. And there is no doubt that the volume of bad debts in banks will continue to go up and up until bankers are able to ensure quality of fresh lending. It is pity that they recover Rs.100 and by that time Rs.200 or Rs.300 of standard loan turns bad. When loan goes bad , it is easy for bankers to say that it is due to economic recession or global recession. Neither Government of India nor top management ever tried to strike at the root cause of standard advance slipping into NPA. Obviously when they are unable to find out and discover the real nature of sickness, they cannot diagnose the patient properly.
Health of PSBs will continue to deteriorate and big bosses will continue to make promises for taking care of it. In a country when leaders are unable to say spade a spade , we cannot dream of any transformation or any improvement from current mess in economy. We will have to learn and propagate a culture where guilty are punished without loss of time and performers are only elevated to higher level. We will have to end the culture of flattery and bribery . We will have to inculcate good habits in the childhood of all Indians.
It means to say that each employees joining in the bank have to be taught the lesson of loyalty to the organisation they serve . We have to stop the practice of worshiping bosses and we will have to end our loyalty to our bosses , our seniors and ministers . This is possible only when power of recruitment and promotion is left with minimum quantity of discretion. It is better to give all an opportunity to serve their organisation and the country in order of seniority and if he fails even after all persuasion , motivation and training to perform as per expectation of bank, such workers may be shown the exit door without any hesitation and without much delay.
Here it will not be incorrect to say that only a goldsmith can identify and certify purity of gold. Similarly only honest and good officers sitting in Interview panel can choose meritorious officers. Gang of thieves forming part of Interview panels set for promotion of officers from one level to higher level cannot choose meritorious officers . This is the root cause why only yesmaen are picked up for promotion and recruitment in banking industry and this has been happening since 1991 when bank management were given power to choose officers of their choice on merit basis.