Mar­kets, Not Co­er­cion, Will Cure Bank NPAs

The Economic Times - - The Edit Page -

On Mon­day, the heads of 10 top pub­lic sec­tor banks (PSBs), led by Arund­hati Bhat­tacharya, chief of In­dia’s largest lender, State Bank of In­dia (SBI), met fi­nance min­is­ter Arun Jait­ley. The ob­jec­tive was, os­ten­si­bly, to dis­cuss the load of bad debt on the books of banks and how to man­age it. But as this news­pa­per re­ported, a far more se­ri­ous topic was on the agenda: the threat of ha­rass­ment of bank of­fi­cers and man­age­ment by in­come tax, en­force­ment, the Cen­tral Bureau of In­ves­ti­ga­tion (CBI) and other in­ves­tiga­tive branches for loans made in the past that have sub­se­quently soured. This is not para­noia: in Jan­uary, the CBI ar­rested a for­mer chair­man of IDBI Bank, ques­tion­ing his de­ci­sion to lend .₹ 950 crore to the now-de­funct King­fisher Air­lines.

The ar­rest froze lend­ing for new projects, as bankers turned in­creas­ingly riska­verse. But if PSBs, In­dia’s largest lenders, are paralysed, the flow of credit to busi­ness will dry up, chok­ing any chance of re­vival of in­vest­ment and growth. Es­ti­mates say that by end-De­cem­ber 2016, bad loans were 12.5% of to­tal lend­ing in the sys­tem, an ap­palling num­ber. Fear of arrests will pre­vent bankers from agree­ing to any re­al­is­tic hair­cut while re­struc­tur­ing bad loans, stymy­ing things fur­ther. In­stead of bark­ing at banks and send­ing sleuths to hound lenders, the gov­ern­ment must give them con­fi­dence to re­sume their nor­mal ac­tiv­ity of lend­ing and ac­cept­ing de­posits. Liq­uid­ity must re­turn to the sys­tem. In­dia now has a new bank­ruptcy law: if loans go bad, banks should in­voke its pro­vi­sions to quickly seize as­sets of com­pa­nies and sell these to as­set re­con­struc­tion com­pa­nies, which can then auc­tion these to the high­est bid­der. Mar­ket-led so­lu­tions, not sarkari co­er­cion, must be the cure for our bad-debt headache.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.