Banking, Uncategorized

Bad loans in banks

Banks, particularly PSBs, seem to be in the news for several wrong reasons, including bad loans, restrictions on lending, reluctance to lend and so on. Most PSB Chairpersons also seem to have gone into hibernation with no real attempts being made by any of them to change this narrative.

It is not as if bad loans in banks have suddenly come up. What matters is how the situation is handled by the banks, RBI and the borrowers. The bankruptcy and insolvency code is now being held up as the ideal solution, with the result that is fast becoming the only solution instead of it being the very last.

Raghuram Rajan should probably be remembered as among the most disruptive Governors of Reserve Bank of India (RBI). Riding roughshod like a cowboy, issuing g ultimatums to banks, has not helped the situation at all. All it achieved, at least in the short run, is that banks ended up with red splashed all over their balance sheets. Meanwhile Rajan merrily went on making one political statement after another making him a darling of Page 3 celebrity bimbos. The sort of dire consequences being bandied about if his tenure was not extended have all turned out to be so much nonsense.

Any viable solution to the acute problem of how the bad loans are to be recovered need a coordinated effort by the Government, RBI, banks and borrowers. If there are more than 2-3 borrowers in the same industry facing a problem is servicing their debt, it means that industry association should be called in to address common problem. Not every debt is because of fraud or misappropriation, there could well be issues that the government should take up and solve. Simply filing for bankruptcy is not the solution.

First of all, the whining by PSB Chairmen should be stopped. If any of them can’t take the heat, they would do well to quit. Pandering to their paranoia should be avoided at all costs. Let each of them take ownership of the bad debts in their respective banks and offer solutions. The government should facilitate interaction being banks so that it becomes a group effort. There has to be a clear distinction between longer term infrastructure loans and short and medium term loans and working capital loans. The problems in each such category need different approaches. RBI should be involved to help banks arrive at solutions. Simply threatening banks serves no purpose.

Every PSB Board has continuously had representatives of the Finance Ministry. What were they doing all this time to fulfil their primary responsibility? If some borrowers were favoured, why did they not raise red flags? All the larger bad loans were sanctioned and disbursed at least 4-5 years ago.

The Finance Ministry now needs to get their act together. If needed, retired bank officials can be recruited on 2-3 years contract, to focus entirely on loan recovery.

Banking, Uncategorized

RBI & Demonetisation

  • RBI seems to have been unnecessarily open with information on notes surrendered at bank branches during this whole period.
  • It is now quite apparent that information fed to top management of RBI from below was either deliberately or inadvertently exaggerated.
  • Having learnt lessons from that, now at least RBI is being careful in releasing information in the public domain & to Committees.
  • Instead of bleating about “loss of independence”, RBI Unions would do well to look at the rot in their own membership.
  • Not just in feeding wrong information to their bosses, there is enough indication that some RBI employees colluded to mislead and also actively acted wrongly.
  • Only Income Tax, ED and such other authorities can actually seize or freeze unaccounted funds in banks but banks themselves can take some action themselves.
  • There is no reason why bank officials should not be held accountable for misusing inoperative accounts, manipulating exchange of currency and so on and managements should also be held to account for taking corrective action.
  • There is no doubt that there is a deep rot in the banking system where corruption is rife and many, if not all, banks are involved.
  • Role of post offices should also be investigated to see if they have acted outside their remit in facilitating wrongdoing in exchange of banned notes.
  • Finance Ministry & RBI need to act much more promptly to ensure that credibility of banks is retained.