The past week has been a happening week for the banking industry(!!) in India. Let me recapitulate a few headlines and major news items.

* RBI troubled by Loan quality of banks.

* RBI raises alarm over loans to Real Estate, NPAs.

* “PSB’s burden” – An editorial in a leading English Business daily.

* “Now open, the first Bank for women” – Bhartiya Mahila Bank, inaugurated on Nov 19th by very high profile dignitaries in Mumbai.(A big positive for women)

Let us look at the NPA issue:

In our wonderful country, the powers that be have the uncanny ability to zero in on the problem after the issue has got exacerbated. Everyone talks about the need to contain NPA, ensure quick recovery of banks dues so that banks’ health improves substantially and there would be no crying urgency for capitalisation of PSBs. The ones so saying, know very well that it is easier said than done. The SARFAESI Act, a potent instrument has been blunted by repeated stays granted on execution and innumerable operational difficulties thrown up have diluted the impact. PSBs have taken up the responsibility of funding industrial projects and infrastructure projects of large size and resultantly large exposures have arisen. Due to implementation delays tens of thousands of crores are lying locked up in these projects and who is blamed – who else but the favourite whipping boy – Public Sector Banks. It is a classic case of “Do and you are damned and don’t do and you are damned”!!.

We want to enforce world class prudential standards on a system that is steeped in information asymmetry, deplorable enforcement standards and a populace fed daily with a recipe of unscrupulous borrowers / citizenry getting away with anything!! What a paradox indeed!!

When things go wrong and they will continue to go horribly wrong as the system abets in the process, the easiest thing to do is to take out the whip and punish the whipping boy!!

The only words of some solace for the poor whipping boy is found thankfully in the last two paragraphs of the editorial piece referred above, wherein the newspaper “ has lauded the initiatives of PSBS in taking up exposures on projects and infrastructure. The daily in its wisdom has pointed out that the objectives of kick starting the investment cycle or improving infrastructure cannot be met without project lending”. Try kick-starting an investment cycle by financing kick starter motorcycles sales to salary earners only! The equity market for new issues is moribund and there is no corporate bond market worth speaking of and where else will funds come from.

Let us not always do what is fashionable but understand the core issues of the problem and try to address them. “Easier said than done”, you would say. I cannot but agree. But old men have right to lament!! Please don’t take that away too!

Jai Hind.

Prof. Kothandaraman S

Faculty Member-Finance Area,

Thiagarajar School of Management, Madurai.