Let Banks Not Treat the Symptoms But Maladies

This refers to your special story on NPAs ( Cleaning the Bad Loans Mess, May 7). The shocking figure of `14 lakh crore is indeed an eyeopener, and if this state of affairs and rising trend of NPAs continues, our banking sector may be literally on the edge of a major financial disaster. It may be recalled that with a view to moving towards international best practices and for ensuring greater transparency, it had been decided to adopt the “90-day overdue” norm against “180 days” for identification of NPAs, from March 31, 2004. And after nearly 13 years, now it is necessary to reduce the norms – 45 days or 60 days – for an effective control. NPAs are problematic for financial institutions since they depend on interest payments for income. In January 2014, the RBI had offered some leeway to banks for early resolution of bad loans. It had also diluted rules for provisioning it had proposed for non-performing accounts. But now it is time to review the situation again. The heart-burning over humongous NPAs can be avoided by following some steps like adequate study of projects before taking a lending decision; ensuring meticulous compliance of all terms and conditions of sanction; carrying out regular and frequent inspections of all accounts; and cutting down annual review of all accounts to quarterly review for timely and corrective action. Like good surgeons, let the banks not treat the symptoms but to treat the malady itself, so that further deterioration in the quality of assets is stopped.

J.S. Broca, New Delhi