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

PSU Banks Protect Politicians

PSU banks have to stop becoming piggy-banks for politically friendly businesses- Money Life

According to independent MP Rajeev Chandrasekhar,  the Modi governmentt should come out with a strategy to restructure and restore the health of these banks that are becoming piggybanks for politically friendly businesses Rajeev Chandrasekhar, an independent member of the Rajya Sabha, who is also a member of the Standing Committee on Finance, has called for a strategy to restructure and restore health of public sector unit (PSU) banks in the country.

 

Mr Chandrasekhar was speaking during the discussion on the motion of thanks on the President's address. He said, "The basic principle of fairness and equity stands turned on its head when home owners and two-wheeler owners have their assets seized on default of their loans, when multi-millionaire businessmen who owe Indian banks end up with little or no pain. This situation is neither tolerable nor acceptable, and the Indian PSU banks have to stop becoming piggy banks for politically friendly businesses."

 

He said, "The other big worry is the health of PSU banks – all of which are owned by the taxpayers and public of this country, but seem to have been run like some people’s personal fiefdoms - with the consequence that lakhs of crores of non-performing assets (NPAs) dominate their balance sheets and write off taxpayer equity.

Regulatory competence here again needs to be examined which allows 10 industrial groups to borrow almost 90% of the Indian banking system's net worth and create the ‘too big to fail’ syndrome that puts the banks and taxpayers on the hook rather than the promoters."

 

The independent MP said he looks forward to the Narendra Modi government's approach to big business defaulters and a strategy to restructure and restore the health of PSU banks.

 

Mr Chandrasekhar also raised issues like GDP decline, investment cycle and government finances during his speech. "fiscal responsibility and a value for money culture must be brought into the Government. A culture that focuses on what got done, and not just how much money got spent - which seems to be even today the way to measure Government effectiveness. That must change. Public money and assets must be handled by Government with a sense of trusteeship. Public spending is notoriously leaky and fosters corruption, and worst, only a small percentage of spending is reaching people. Fundamental reforms in this area are necessary and long overdue and a new Approach to Government Spending is needed. Reduction of corruption and leakages in public spending is a key requirement to create headroom for Government spending at a time of fiscal constraints," he added.  

Link MoneyLife