oppn parties Rajan Offers Sage Advice On NPAs

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  • In reply to a question in Parliament, the government says it is empowered to lawfully intercept, monitor or decrpyt information stored in a computer resource in the interest of sovereignty or integrity of India
  • Police stop a 12-year old girl on her way to the Sabarimala shrine
  • In Karnataka, the JD(S) indicates that it might support the BJP government if it falls short of numbers after the bypolls
  • Congress pips the BJP in local body elections in Rajasthan, winning 961 wards to the BJPs 737
  • After Airtel and Vodafone-Idea, Jio also indicates that tariffs will be raised from December
  • Sources in Shiv Sena say that they might revive the alliance with the BJP if it offers the 50:50 deal
  • A miffed Sanjay Rout of the Shiv Sena says that it will take "100 births" to understand Sharad Pawar
  • Mobile operators Vodafone-Idea and Airtel decide to raise tariffs from next month
  • Sharad Pawar meets Sonia Gandhi and says more time needed for government formation in Maharashtra
  • Justice S A Bobde sworn in as the 47th Chief Justice of India
  • Supreme Court holds hotels liable for theft of vehicle from their parking area if parked by valet, says "owner's risk" clause is not a shield from such liability
  • Finance Minister says she is receiving feedback from many sectors that recovery is happening as there is lower stress
  • Sabarimala temple opens, but police bar the entry of women below 50 years
  • Finance Minister Nirmala Sitharaman says Air India and BPCL to be sold off by March
  • Media person Rajat Sharma resigns as DDCA president
Two Muslim litigants in Ayodhya refuse to accept the Supreme Court order, say review petition might be filed
oppn parties
Rajan Offers Sage Advice On NPAs

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
The parliamentary estimates committee had requested Raghuram Rajan, former governor of the RBI and chief economic advisor to the UPA government, to submit his response on the NPA problem being faced by PSU banks in India. His observations have triggered a war of words between the government and the Congress. But politicking and bickering must not be allowed to deflect the issue. Rajan’s observations are incisive and provide ideas for further reforms. But the problem is that the NDA government, despite finding faults with most of the policies followed by the Congress governments of the past, has followed the same policies with minor, or sometimes major, tweaks.

Hence, it continues to recapitalize the banks that are saddled with bad loans that have all but wiped out their capital instead of thinking out of the box for a revolutionary idea. Its idea of transferring the bad assets to a new company also did not materialize. Despite trying to put bankers and other lenders in a strong position by reforming insolvency laws through the introduction of the Insolvency and Bankruptcy Code, it has not yet successfully and fully implemented it. It has also tried to follow the same old practice of pushing huge credit to sectors that it has identified. Although it is the prerogative of the government to identify sectors of the economy that it wants to grow which in turn necessitates flow of credit to those sectors, there is always the risk that fly-by-night operators take advantage of this policy. Bankers also become weak-kneed in the face of government directives and often deserving projects in other sectors suffer. Finally, if the sector fails to take-off (which often happens), banks are saddled with huge NPAs. It has happened in the past and it continues to happen. The NDA has not learnt from the faulty policies of the Congress governments.

Banks have become the playgrounds of politicians. From loans to preferred sectors and sometimes to preferred entrepreneurs – although through covert pressures – to loan waivers for sundry groups, bankers are asked to throw norms to the winds and do everything they are not supposed to do. Couple this with rampant corruption and it becomes very easy for the well-connected or the person willing to grease palms to obtain massive loans with the express intention of not paying the money back. The only hope for banks is the successful implementation of a strict insolvency code that can bring the money back to them through sale of the defaulting entity. They might not recover the loan in full but they will not have to write it off in full either.