Sunday, May 7, 2017

NPA Rises Due to GOVT Influence of Job Promotion

Well I have been criticized many times for being upfront but truth is just like sunshine which will rise without any ones control. The Indian banking industry has been crying for the rising NPA levels. Currently the banks have a total stressed asset and NPA of Rs 14 lac cr of Loan.  Yes the RBI site will reflect the NPA amount but when one takes into account the total stressed assets its just doubles from Rs.7.5 Lac cr to Rs 14 lac cr. The gross NPAs have jumped from a low of 2.5% in 2011/12 to a high of 10%  in 2016/17. Stressed loans, which include gross NPAs plus the restructured loans under various resolution schemes, is estimated to be anywhere between 18-20 percent.

The gross NPAs have jumped from a low of 2.5% in 2011/12 to a high of 10 per cent in 2016/17. Stressed loans, which include gross NPAs plus the restructured loans under various resolution schemes, is estimated to be anywhere between 18-20%.We are not here for the number crunching but to figure out the foul play behind the numbers of rising NPA (including stressed assets).  

The whole of the credit blame is not of the slowdown of the Indian economy during that phase. If one gets into the data will find that extravagant lending was influenced by the government itself who ruled during that time. UPAII played a pivotal role for this pile of loans. The govt funded them through banks and at the cost of tax payer’s money. Among all these reforms measures Govt needs to free up the process of promotion since promotion carrot leads the banks to go against the norms and this has now become a practice. The promotion carrot played within the 5 years terms of the Government cost billions of money to the tax payers. These NPA’s are nothing but  duping the tax payers and getting funds into the political ambit.Loans are given when the govt informs the banks to lend even they books are in trouble.

Excessive and extravagant lending between 2009 and 2013, particularly to sectors such as infrastructure, power, textiles, metals, etc. Now majority of this phase belonged to UPAII where the loans piled up. The growth of the loan is linked with the government and bankers. In PSU banks we all are aware that there is lobby for getting promotions. This lobby is linked with the government and hence there is interlinked strong influence of providing loans to the defaulted corporate. Now UPAII new that there were bottle necks and there were scams which hindered the growth of the Indian industries and hence despite of knowing the same, both the govt and Bankers under their influence gave loans.

The poof of the above theory is from the quality of loans being given by them to these companies where the banker knew that their credit quality and balance sheets are over leveraged and future cash flows are under question mark. Prevention of Corruption Act (PCA) was never in place and hence now getting the modification of the same is highly required. There is a fear of future investigation by agencies under the Act for any professional decision gone wrong. Accountability and government influence for promotion needs to be abolished then only PSU banks will operate freely just like Private Banks.

It has been found that a change in governance, management, and operational and compensation flexibility are almost surely needed in India to improve the functioning of most PSBs. Now if one looks at the companies where the huge NPA is piled ups one will find that most of the companies will be having direct contact with the UPAII and very much under the influence of them.

If Supreme Court banned coal mines and other mines then the responsibility or removing the bottle neck was on the shoulder of the government. Further  the ban did not came in one day hence if one checks at the frequency and timings of the loans disbursement then one will get more clarity on the depth of the influence.  Government intervention and control have been one of the key factors behind the pile of the NPA. The day Indian government will free up the operational responsibilities and promotion process influence that day the NPA problem will be resolved.

Many professional bodies’ holds immense strong bonding and relationship with the senior management of the PSU banks which also raises the eyebrow regarding the fiduciary relationship among them. They also play a pivotal role is attesting the books of accounts and other documents required for such extravagant lending.  Playing with NPA numbers are of no use since history will repeat again after a decade. 

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