NPAs: Threat to the system?

Of the ten banks that have announced results in the past ten days, seven have seen their bad loans go above 6 percent of their total book. Veteran bankers now say if the bad loan hemorrhage has to be stopped from becoming system threatening, RBI and the finance ministry must constitute an independent panel that takes charge of top 100 large loans and resolves them.  It's a rising tide of bad loans and can cause untold destruction. Of the ten large PSU banks that have announced results in the past ten days, seven have reported bad loans over of 6 percent. Bankers who have just retired say this number can go much higher because under the current dispensation bankers are scared to give decisive help for fear of investigative backlash. They say an external committee comprising government or RBI officials or external experts must be set up to study and resolve the top 1090 stressed corporate loans.Diwakar Gupta, former MD, SBI, says: “The governor, the RBI, the government, they have to find a one-off mechanism by which they will be able to create an empowered body that can force these decisions across at least the pubic sector banking space. It may be on a one-off basis, it may be for 200 units but it has to be done."

SL Bansal, former CMD, OBC, says: "It is like Tsunami of NPAs. We need to resolve this. Either the government of India or the RBI under the chairmanship of either Deputy Governor or additional secretary can have a committee. They can take ownership of 100 top NPA accounts and written-off accounts and resolve these accounts."The key reason for the rising amount of bad loans is that borrowers of loans that were restructured two years ago in the hope that stalled projects will restart and the economy will recover, are now defaulting. And that's because neither have the projects restarted, nor has the economy recovered. Adding to the problem is the absence of chairmen in many big banks like PNB and Bank of Baroda. While the government may take its time to select chairmen and clean up boards, for banks and the economy a quick resolution of loans is now unavoidable.