Non-performing assets are essentially a problem of reckless funds disbursal by public sector banks in particular. The Report on Trend and Progress of Banking in India 2012-13 sheds some light on this aspect.
The Report has observed that “deterioration in asset quality in 2012-13 was primarily on account of the non-priority sector”. A summarised version of sector-wise NPAs and percentage to total NPAs of domestic banks is given in the table.
As much as 77.8 per cent of total NPAs of new private sector banks are in the non-priority sector, while that for old private sector banks and public sector banks is 63.2 per cent and 57.1 per cent, respectively.
But the increase in NPAs in the non-priority sector is more pronounced in PSBs and old private sector banks than in new private sector banks (see table).
The addition to NPAs during 2012-13 is more than 100 per cent of the figure at the beginning of the year in the case of PSBs. It would thus appear that there is an urgent need to focus on all the factors responsible for the plight of PSBs.
Some qualitative issues In the increase in NPAs of banks in general and PSBs in particular, the internal functioning of banks has a large role to play.
These issues are, however, not highlighted. There is a chalta hai syndrome with respect to tackling NPAs. This is all the more because the Government makes a periodical budgetary allocation for re-capitalisation without raising questions of accountability. The laxity is evident in the composition of the boards of directors. Being political appointments, their effective participation in critical areas of operation of the bank is not significant.
As for directors who represent the interests of shareholders, those who can garner support through votes of financial institutions move from one PSB to another. Some remain on the boards of PSBs for several terms.
Another issue is that of lateral mobility of CMDs of PSBs. It is common to find reports in the media, of the in-coming CMD saying that the net profit during the quarter after he took over came down because of additional provisioning.
Did the previous incumbent sweep NPAs below the carpet? No questions are asked. The remuneration and perquisites of all CMDs of PSBs are same.
In that case, why this scramble for jumping to bigger banks or those having branches at overseas centres?
Needless haste Another breeding ground for NPAs is the lacunae in sanctioning need-based credit limits.
The reasoning given is that if we do not sanction the limits, others would be more than willing to sanction higher limits at lower rates.
In such a scenario, issues such as the names of promoters appearing in the defaulters list, unfavourable financial position of borrowers, and breach of single borrower/borrower group limits are overlooked. Sanctioning of financially weak proposals in such a situation becomes rather easy.
Due to paucity of time and the millions of accounts particularly in the sub-standard category, auditors have a tough time effectively examining asset quality classification done by banks.
This is all the more so when managements vie with one another to come out with the final accounts as early as possible after the year end.
The 52 per cent rise in advances to the corporate segment under the CDR mechanism during 2012-13 makes one wonder if this mechanism has been used to postpone categorisation as NPAs.
The problem of NPAs cannot be solved by mere tinkering. There is an urgent need not to sweep NPAs under the carpet and to highlight such efforts in Internal Inspection Reports.
Auditors need time to arrive at correct classification of advances and avoid haste in finalisation of accounts.
It is vital to contain the menace of rising NPAs. The earlier concerted steps are taken, the better.
( The author retired as regional director, RBI. )