Saturday, November 16, 2013
Concerns are raised about the health of Indian Banking system. Specially, with the Non Performing Loans (NPLs) increasing Quarter to Quarter, concerns about a vital pillar of economy seem justified.The importance of banking system in economic growth is well established both in theory and practice. Government Banks have registered steepest growth in NPL. Considering PSU banks controlling 75% of the market share, this is a matter of great concern to all stake holders of our Economy.
I appreciate concerns displayed by Reserve Bank of India ( RBI) in the recent Bancon 2013 . However, we need to be very clear about the objective of such concern. Is it a routine exercise or is it aimed to improve the system ? If the objective is the first one , then I have nothing more to say. If the objective is the second one, then I want to put forward a few points:
Point 1 : RBI nominee director is sitting in the Board of every scheduled commercial bank in the country. RBI Deputy Governor Dr K.C.Chakrabarty, in his speech at Bancon 2013, mentioned that if loan sanctioned by Board turns NPL , Board has to be accountable. In such case , should not RBI nominee directors of respective banks be accountable ? Before becoming Deputy Governor of RBI, Dr Chakrabarty was CMD of Punjab National Bank. As a CMD he was part of Board which sanctioned loan to large borrowers. I am very sure that some of such borrowers are NPL customers today. If we analyse the Credit Appraisal Sanctioned by his own Board , there are obvious weakness of many such appraisals. Under such situation , should he also not take responsibility ?
Point 2 : Today RBI is telling that 2008-09 restructuring did not yield result and this is one of the major reasons for the current NPL problem. Now my question is : who issued the restructuring circular ? It is RBI. If it has taken some wrong decision why it should not also take the responsibility ?
Point 3 : Was it possible to anticipate such problems ? I am sure that it was possible. I have been conducting training to banks , financial institutions and NBFCs in India ( specially in Credit Appraisal and Risk Management since 2008. I have been able to forecast quite a few problem from 2009 on wards, in my training. I have been teaching in Indian Institute of Management Calcutta for last 10 years. I did predict future NPL situations in my class of 2009, 2010, 2011 and 2012. Students of my course Bank Management / Commercial Banking from these batches can corroborate my contention. I have also written twice ( on March 12 , 2013 and May 15 2013) to Smt Usha Thorat , Director , CAFRAL for an appointment so that I can share my views about the risks of the banking system. However I did not receive any reply, not even an acknowledgement . I have written another mail to Ministry of Finance but again same result : no acknowledgment or no reply. From the actions of RBI and Ministry of Finance , I can infer that neither of the organisations are open to new thoughts or ideas. Can any organisation in today's world survive with closed mindset ?
Point 4 : If we really want to address the problem , we have to go to the root cause and then fix the problem. In case, we fail to do so , we shall only defer the problem and the problem will get bigger and bigger. At least present directions of attacking the problem point out that we are not going to the root cause analysis . I am very sure that problem would get bigger and bigger and in future it would explode.
However I shall keep my views posted in this blog about the future of Indian Banking . I thank Google, Face book for creating an option for common people to share their views when authorities concerned are not willing to listen .