Parekh cau­tions on RBI's bad loans tack

The Pak Banker - - COMPANIES/BOSS -

In­dia's vet­eran banker Deepak Parekh cau­tioned the Re­serve Bank of In­dia Gov­er­nor Raghu­ram Ra­jan on the clean-up bid of banks' bad loans and said too much of "anes­the­sia" could re­sult in pa­tient be­com­ing co­matose.

"I only wish to cau­tion that too much of anes­the­sia can also re­sult in a pa­tient be­com­ing co­matose" Mr Parekh said in a speech on Wed­nes­day re­fer­ring to the bank­ing reg­u­la­tor's ef­fort to clean up banks' bal­ance sheet.

Gov­er­nor Ra­jan has re­cently said that In­dian banks need deep surgery to fix the bad loan prob­lem rather than a ' band aid' or quick­fix so­lu­tions.

"Think there­fore of the NPA clas­si­fi­ca­tion as an anes­thetic that al­lows the bank to per­form ex­ten­sive nec­es­sary surgery to set the pro­ject back on its feet," Mr Ra­jan said last week at the CII bank­ing sum­mit.

He was re­fer­ring to the re­cent di­rec­tions of the RBI to banks fol­low­ing an as­set qual­ity re­view (AQR) that has iden­ti­fied loans which lenders need to clas­sify as non-per­form­ing in two quar­ters - Oct-Dec and Jan-March. "Yes, we need trans­parency in ac­count­ing for NPAs, but surely the ob­jec­tive of the clean-up is to fix the fi­nan­cial rot, not to in­ca­pac­i­tate banks," Mr Parekh said.

He cau­tioned that the bank­ing sec­tor can­not af­ford an­other quar­ter like the one just gone by. "In just 40 days, listed banks have lost more than Rs.1.80 lakh crore in their mar­ket cap," Mr Parekh said. Many banks have al­ready warned that the next quar­ter earn­ings will also be un­der pres­sure as most of them had clas­si­fied only 50 per cent of the RBI iden­ti­fied ac­counts as NPA.

Out of 40 listed banks that have de­clared their third quar­ter re­sults so far, 10 banks had gross non-per­form­ing loan is in ex­cess of 8 per cent, while 22 banks had NPA in ex­cess of 5 per cent. The to­tal loss re­ported by banks in the third quar­ter is to the tune of Rs.10,000 crore.

Mr Parekh pointed out that while the govern­ment has tried to bring in re­forms in pub­lic sec­tor banks, though not much of an im­pact has played out till now. He warned that re­cap­i­tal­iza­tion is not a long term so­lu­tion.

"Will just re­cap­i­tal­is­ing the banks solve the prob­lem? This ef­fec­tively means it is the tax­pay­ers that are bail­ing out the banks," he said. "And ev­ery govern­ment has con­sid­ered it political hara-kiri to even con­sider di­vest­ing their stake to below 51%." The so­lu­tion to the NPA prob­lem, ac­cord­ing to Mr Parekh is that, the mind­set of the pol­icy mak­ers that needs to be changed.

He said the govern­ment should freely al­low the right tal­ent to come in to run PSU banks and where prospec­tive new in­vestors bring­ing in cap­i­tal, should be given a role in run­ning those banks. He also high­lighted the need for a Bank­ruptcy Code be­comes which can en­sure that large busi­ness houses are no longer able to take the bank­ing sys­tem for a ride.

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