April 28th, 2016, IIF Delhi & G-Noida : NPAs and cleaning of balance sheets by banks is corruption led abuse of system and an economic terrorism said Prof. Dr. J.D. Agarwal, Chairman & Professor of Finance, Indian Institute of Finance, Greater Noida. . The government must take necessary steps immediately before it is too late particularly when it is determined to weed out corruption from the system feels Prof. Agarwal.
Non - Performing Assets have become a very serious issue in the present state and is being highlighted particularly now after Vijay Malay’s case of 9500 crores of NPAs situation said Dr. Agarwal. According to him, several lakh crores of NPAs have already been written off in the past. Another exercise in the name of cleaning of Balance sheet of banks by writing off the bad loans running into several thousand crores, is in the process. Ever since writing off the bad loans begun, no officer of a bank or a bank, auditor(s), or regulator, has been charged with the inefficiency or corruption. RBI and Banks are even shy of disclosing their names and loans held, and written off in the past. Bad loans cannot be one sided affair. The whole process is economic Terrorism and systematic loot by a select few detrimental to interest of the Indian Economy and also the stakeholders and public said Dr. Agarwal.
According to Prof. Agarwal, banks particularly public sector banks are public institutions. They should not be allowed to play mischief with depositors’ money and the economy.
Large size of NPAs are a result of a wrong definition of NPAs as given by Narsimham committee in 1991, weak RBI regulations, weak monitoring and regulations both by banks and auditors. Weak audit system and failure in compliances and action on audit reports without fixing responsibility either on bank managers or on auditors is also responsible for NPAs feels Prof. Agarwal.
Prof. Agarwal strongly feels that NPAs occur due to hand and glove relations between the bankers and the defaulting borrowers or defaulters either due to political influences or the usual facilitating fee i.e. bribe, paid to bank officers by the clients and shared at different levels. NPAs also occur due to improper assessment of value of assets submitted as security and also those of sureties.
Executive committees, ALM committees, Audit committees and board of directors of various banks are also equally responsible for NPAs and the resultant loot by some unscrupulous people by giving sanctions to
undeserving loans observed Prof. Agarwal.
According to him, international practice or Narsimham committee definition given in 1991 with respect to NPAs is not relevant for India. The very definition of NPAs is faulty and wrong and making banks to suffer financial losses. Narsimham committee report 1991 and its recommendations on NPAs is inappropriate, wrong and faulty resulting in heavy losses for banks. Blindly following international practices or standards without taking into consideration local business conditions, regulatory framework and highly burdened judiciary is not only wrong but seriously damaging the business environment. In a country like India where 3 to 6 months credit is the business norm,manifested with pivotal role of black money in business operationsin India and serious liquidity crisis, how can repayment of loan or payment of interest is expected to be made within 90 days and if not paid categorised as NPA to be written off to clean off the balance sheet asks Prof. Agarwal.
To improve the balance sheets of banks the usual practice of NPAs being written off to show good financial position is not justified said Prof. Agarwal. He strongly said that there has to be a mechanism to fix responsibility on bank officers who initiated loan proposals, got loan sanctioned. Such officers should be penalised instead of being rewarded through promotions. That shows even officers at higher echelons of banks are involved in the process.
In opinion of Prof. Agarwal, the whole process of sanctioning large loans is traditional and faulty. Most managers even do not know how to evaluate large projects using latest financial techniques. It is all based on networking, and influences rather than professional evaluation. Executive committee sanctioning loans provide safeguards to such erring managers.
Government should take necessary steps to improve the system. Limited liability clause in companies act should be removed for majority shareholders who are at the helms of affairs of the company. How can top management drawing remuneration in crores and managing the affairs avoid their responsibility and put the economy to ransom. It is economic terrorism. Government must act immediately before it is too late said Dr. Agarwal.