29 Nov 2019 18:08 IST

NPAs still pose a significant problem for banks, says C Rangarajan

Stakeholders must work together to solve this issue, says former RBI Governor at ICFAI-FHE seminar

The ICFAI Foundation for Higher Education (Deemed-to-be University), Hyderabad, organised a seminar on non-performing assets in Indian banks and their resolution.

C Rangarajan, Chancellor of ICFAI University, former Governor of RBI and former Chief Economic Advisor to the PM, in his inaugural address, said that “A relook at the present mode of recapitalisation should be taken into consideration to curb the NPAs”. “Monitoring and early warning systems need to be strengthened. Bank officials should neither be “lazy bankers” nor “hasty bankers” and must strike a proper balance,” he said.

Better credit appraisal

Rangarajan added that: “The rise in non-performing assets ratio has been an issue since banking sector reforms, from the year 1991; these have reached alarming levels in 2018, becoming one of the highest in the world. The situation was further aggravated when asset quality reviews were undertaken in 2015-16. This seriously affected sectors such as mining, iron and steel, textiles, infrastructure and aviation. The majority of public sector banks provided loans to these sectors. Even though the government and the regulator brought in several initiatives, such as corporate debt restructuring in 2001 and the introduction of the Insolvency and Bankruptcy Code (IBC) in 2015, NPAs still pose a significant problem for the banks, and all stakeholders need to work together to bring about an easy transition,” he explained.

Rangarajan suggested that the regulator can start with better monitoring of macro-economic indicators, such as overall credit growth and excessive exposure to certain groups and sectors.

The government, on its part, must work on its relationship with the boards of public sector banks, where maintaining arm’s length is more talked about than implemented. The banks must recognise that the ultimate responsibility lies with them. Better credit appraisal systems and risk management processes must be the way forward.

NPAs: Serious implications

Dr Rangarajan inaugurated a Centre for Banking and Finance at the University, which would act as a platform for collaborating with external experts to focus on issues critical to the functioning of the financial system and offer solutions.

Earlier, Prof J Mahender Reddy, Vice-Chancellor of the University, welcomed the gathering and spoke about the serious implications that NPAs pose to the country’s financial stability.

The event was attended by eminent personalities from the banking sector and academia, including Shankar Iyer, former CFO, Bank of India; Rudropriyo Ray, Chief Compliance Officer, Axis Bank, Mumbai; Prof Asish Saha, FLAME University, Pune; Sudhir Joshi, Former Treasury Head, HDFC Bank, Mumbai; Sankarshan Basu, Professor of Finance, IIM Bangalore; Debashish Mukherjee, ED, Canara Bank, Bangalore; and B Sambamurthy, former CMD, Corporation Bank and former Director and CEO, IDRBT.