oppn parties Rajan Offers Sage Advice On NPAs

News Snippets

  • Crude prices fall sharply as Saudi Arabia assures normal production in a few weeks. Prices fall by 5.4% to $65.30 per barrel
  • Sensex tumbles 700 points over fears that rising crude prices will deal a body blow to the tottering Indian economy
  • As Rajeev Kumar fails to appear before the CBI despite several notices, the agency forms a special team to locate and apprehend him
  • S Jaishankar says Pakistan is not a normal neighbour and its behaviour is a "set of aberrations"
  • External Affairs Minister S Jaishankar says PoK in Indian territory and the country hopes to have physical jurisdiction over it one day
  • Barasat Sessions court near Kolkata rejects Rajeev Kumar anticipatory bail application citing lack of jurisdiction as the reason
  • PM Modi celebrates his birthday with Narmada aarti and later has lunch with his mother.
  • All 6 Bahujan Samaj Party MLAs merge with the Congress in Rajasthan
  • Bengal CM Mamata Banerjee to meet PM Modi on Wednesday, state issues on the agenda
  • Pakistan to open Kartarpur corridor on Nov 9
  • Rajeev Kumar, ex-police commissioner of Kolkata and wanted for questioning in the Sarada scam does not appear before the CBI despite the state administration requesting him to do so
  • Supreme Court asks the Centre to restore normalcy in J&K but keeping national interest in mind
  • As Trump accepts the invitation to attend a programme in Houston with PM Modi, India rushes to settle trade issues with US
  • After drone attack on Aramco's Suadi Arabia facility, oil prices jump 19% in intra-day trading causing worries for India
  • Imran Khan raises nuclear war bogey again, says if Pakistan loses a conventional war, it might fight till the end with its nuclear arsenal
Sunni Wakf Board and Nirvani Akhara write to the Supreme Court for a negotiated settlement to the Ayodhya dispute
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.