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Looming Crisis - NPA - Can Indian Banks Go Bust ?





Rajesh Goyal


On many occasions in recent times, AllBankingSolutions has taken up the issue of ever increasing NPAs and the role played by the top management in hiding the NPA in last one decade.   Mr D. Jain, regular contributor to our website has also been doing his best to bring this issue into focus.   However, it appeared that everyone (right from Bank CMDs, EDs to DGs of RBI, Finance Ministry officials) was chanting ...'all is well'.   We small people were brushed aside as  negative and pessimistic.


As late as January 2012, even Dr K C Chakrabarty, Deputy Governor of RBI, has boasted that there is nothing to worry about NPAs in Indian banking industry.  I personally was not convinced.  I still keep wondering how come such a seasoned banker, who knows in and outs of at least two biggest nationalised banks (he was CMD of PNB and BOB) can issue such a statement when NPA crisis is around the corner.   Dr Sahib, this is the time when you do not have to hide behind smoke screens, but have to take the challenge head on.



In my article "CONFESSIONS OF FINANCE MINISTRY - BANKS ARE OVER STATING PROFIT - Fraud by CMDs and EDs of PS Banks for higher incentives and new elevations?", we wrote as follows:-


".......... The above indicates that something really serious is worrying GOI and soon PS Banks may show up much higher NPA levels. It appears the process to cover up themselves has been initiated by Finance Ministry officials. If anything goes wrong in near future, these officials will say "they said so" and fore-warned the banks and RBI. Bank CMDs will take the plea that they are being audited by the teams of RBI and DG of RBI (Mr Chakrabarty ) has clearly stated that there is nothing to worry and thus they have not committed anything wrong. Finally, as it always happen, RBI Governor and his team of Deputy Governors will also go scot free as nobody dares to touch the regulators and king is never wrong".



Now it appears the cat is out of the bag.   Today a report under the caption "Intelligence Bureau warns of rise of bad loans in Indian banks" has appeared in the media.   What we have predicted last week has come true and it is clear that finance ministry officials have issued the statement 'banks are over stating profits' purely to cover themselves of this bombshell.


The report indicates that the Intelligence Bureau (IB) has in a letter to Prime Minister Manmohan Singh warned that the proportion of bad loans on the books of Indian banks could jump from five per cent to 10 per cent of their total loans in the next 12 months mainly on account of "restructured" loans.


Now question arises whether the IB had been fair in its judgment of 10% or this is also a gross under estimate.  


Role of RBI in this whole affair will be under scanner as it has not only given leverage in restructuring of loans but has also been dilly dallying in shifting to the system driven classification of NPAs.    Moreover, till date we have to hear any action against a CMD or ED for over stating the profits or wrong classification of NPAs.   Does RBI have not powers to censure CMDs and EDs for wrong preparation of balance sheets.


Let us wait, how things will take shape in next few months ?  We will watch the new methods adopted to cover up the whole issue for the present.   RBI and Finance Ministry are allowing more and more air to be filled up in the NPA balloon.   Can it bust in near future itself ? 


Lets pray to God, good senses will prevail and some air will be released by initiating action against top brass