Non Performing Policies Lead To Non Performing Assets

Apropos the report, "Bankers pitch for a National Asset Management Company" (June 11), the proposal for setting up a National Asset Management Company (NAMC) draws upon the concept of separating bad loans from good loans, so that more concerted efforts can be made to recover these non-performing assets (NPAs).

However, NAMC-like initiatives can only be successful if they are a one-time exercise of purging the bank books of such bad loans. There is also a question of moral hazard since the bankers may continue to build up NPAs without looking into other causes leading to their NPA growth. NAMC also goes against the interests of various asset reconstruction companies working in the country.

The government and Reserve Bank of India need to consider the various pros and cons of separating NPAs from public sector banks. In the banking business, non-recoveries are a part of the process and the provided remedies are improving loan origination and writing off the unrecovered loans. The NAMC proposal also shows the weakness of the Indian banking policy formulation. Whenever faced with an issue, we are not ready to strengthen our current practices, but start looking for softer options.

By Y P Issar Karnal

 

Link Business Standard