Looking at the enormous size of the banking industry, the NPAs are a big cause of concern. What measures should India take to tackle the threats posed by NPAs?
Refer – Business Line
IAS Parliament 6 years
KEY POINTS
Measures to tackle NPA
· Selection criteria – The quality of top management is one of the main problems in PSBs because of political interference in the selection process. Merit is seldom considered as the main criteria.
· The system of selection and appointment of top officials (executive directors, board members and chairperson) in banks needs a complete overhaul.
· So, the first reform should be to put in place a mechanism to ensure selection of competent and honest bankers.
· Skilling senior staff – The PSBs have no institutional mechanisms to develop the skills of assessing long-term trends and the viability of the project for which the loan is proposed to be advanced.
· Most of the financing is, therefore, balance sheet financing which come with their associated problems.
· In some cases, branch managers or officers, whose careers are mostly spent at the branch level, clear large loans.
· Without the required skill sets, even with the best of intentions, these loans will turn NPAs. So, ensure the senior bankers are well trained in project appraisal.
· Strengthen vigilance departments – There is no effective vigilance mechanism in PSBs. Even if the vigilance finds any lapses on the part of top officials, they are seldom reported.
· An effective vigilance department would be able to detect a ‘quid pro quo’ in awarding a loan or a nexus between a bank official and a rogue borrower in flouting the norms.
· Time-bound probe – Some cases of large NPAs are referred to CBI which takes years to conclude, by the time many witnesses would have retired and forgotten the details of the case or even be dead.
· It should be made mandatory that every case should be concluded within a time limit.
· Raising accountability – The government is the majority owner of PSBs and it is represented on bank board by bureaucrats from the Ministry of Finance.
· These officers often come with little experience or knowledge in banking.
· But being the representatives of the owner, they exercise a disproportionately large influence on the decisions taken by the Board and never held responsible for the decisions which they foist upon the Board.
· So the system needs to change.
1. Appoint officers for a longer period of time in the same ministry and provide them with training in banking and financial services.
2. Induct of professionals from the industry who could bring in necessary expertise.
