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Should We Believe CEOs Who Say NPAs are Not Alarming


Danendra Jain


CEO of Banks are not right in saying that rise in NPA is due to rise in interest rates. All accounts or I may say ninety nine percent of NPA accounts in public sector banks which have been declared as Non Performing Assets upto the quarter ended December 2011 are older than one year when interest rates used to be very low, you may say critically low . In fact , the impact of rise in interest rate during last fifteen months will surface in coming quarters.

It is traditional lame excuse given by bankers that interest rate has spoilt the quality of assets. In fact contribution of interest in the balance sheet of businessmen or that of a farmer or service men is a very very small and more specifically the impact of rise in interest rate is microscopically small. In case of advances more than one crores , borrowers are projecting not less than 3 percent return on equity and any educated person can assess the impact on net profit, sustainability, repayment capacity or economic feasibility of such business projects due to rise in interest rate. A person who borrows money for a car or for a house from a bank has at least number one annual income of more than five lacs and the burden caused due to rise in interest is hardly a few hundred in a month, at least less than the impact of rise in prices of fuel and other essential commodities. In face most of house loan seekers have at least equal amount of black money and they take loan to convert their black money into white money.

When disturbance occurs in USA or other European Countries, bankers get an additional excuse of global recession or that of financial crisis looming large on other countries of international communities. When Obama tightens the economy, India says that Indian economy is stable and growing despite all adverse situations. When Subprime crisis erupted in USA India was said to be decoupled from world economy, by our learned prime minister and finance minister.

But when Obama provided the stimulus package during Sub Prime crisis India did not hesitate to provide stimulus package in India too, consequences of which is being faced by now Finance Minister. Obama comes to India for employment creation in USA and for hardening the condition of VISA India do not understand the importance of employment in India and without hesitation allows big corporate to invest in other countries.

When there is earthquake or flood in any part of the country, crop loan of Indian banks go bad all over the country and government do not hesitate in announcement of waiver of bank loan. Even during ongoing elections in five states all advertisement of Congress party speaks of further waiver of loan if it comes to power.

Our Finance Ministers also make many lame excuses like CEOS of Banks when economists of India and politicians of opposition parties talk of Fiscal deficit or current account deficit or Falling GDP growth or erosion IIP figures or rise in Inflation and relentless price rise. But when FM is in group of diplomat MPs of his own party he talks of Food Security Bill or waiver of loan or free house or free laptops to voters. In fact none is bothered of health of economy of the country but most of them all bothered of wealth of their own families, relatives and friends. If property of to CEOs and politicians are checked by CBI, CVc,IT, ED and other anti corruption wings, bitter truth will precipitate. Unfortunately and traditionally even such agencies are used by ruling parties to torture members of opposition parties.

Culture of manipulation, false excuses for non performance or reason for rise in corruption starts from top ranked politicians, ministers and government officials and then the same dirty water percolates down the bottom.

In India such low level politics is very common. During last six decades of freedom , these politicians could do nothing for reformation in judiciary and this is the reason the common men are taking it easy to bear with injustice than to go court to seek justice and wait for two or three decades. This is the reason that corrupt persons are not punished and they continue their ill motivated mischievous activities. Similarly bankers earn illegal money in wrong lending in the name of credit growth and then shed crocodile tears when the borrowers do not repay the loan in time.

There is a proverb “Old wine in new bottle” One after other laws are enacted , one after other reformatory committees are formed to bring about reformation , but the prime guilty which are human work force do not change their culture and attitude for their organization and towards their country..

It is remarkable to say that our Finance Minister for survival of economy and for execution of economic plans has to sell equities of public sector profit making companies like ONGC whereas CEOs of public sector banks are standing in the que before LIC headquarters to sell their equities so that they may comply Basel recommendation due to the fact that FM, already in begging mode has expressed its incapacity to provide capital infusion and hence left sick banks on the mercy of LIC for capital infusion.

Though volume of NPA in Public sector banks has been rising quarter after quarter ,RBI may be right in saying that volume of NPA in PSBs is not alarming as of now because in case of any eventuality PSBs can meet the crisis by their own capital which is at least 9% as per Bale committee recommendation.

But the matter of real concern is that most of banks are facing liquidity crisis , borrowing money in lacs of crores from RBI and where scope of lending is very much reduced due to inaction of government on needs of corporate sector , it is unavoidable that in near future quantum of bad assets will grow at faster rate whereas lending at lower rate which will result in rise in Gross NPA to total Advances Ratio .

Days are not far when even capital of banks will face sharp erosion and government will also fail to protect the real interest of depositors, investors and shareholders.

To add fuel to fire , corrupt officials are busy in bad lending and corrupt legal system is unable to recover the money from will defaulters of public sector banks.


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