COLUMN: NPA mess has roots in issues of accountability, talent

Ajay SrivastavaNow that the Rs 6 lac crores question of NPA’s and write offs is out in the open, the question is what should be done? Retribution on a mass scale is one option and maybe necessary in select cases to send out a message to the rich promoters of sick companies with gold plated projects and substantial fund diversion – after all Vijay Mallaya is still free. However prosecution has limits and it may lead to the point where the banks cease to lend for the fear of defaults. Managing the business of loans and money comes with risk of defaults and this reality needs to be recognized. However the question is, are the bank processes and employees geared to handle this business with the right risk assessment and management tools. This is crux of the problem. Loan origination itself is fundamentally flawed as the promoter gets one bank on board and others follow suit. There is no independent analysis in most cases and banks rely on lead bank recommendations and find comfort in many. So one compromised bank is all it needs to entrap all other banks. It has to stop. In most cases economic and market studies are missing as well as comparative data on plant costs – Many a Chinese plant has been brought into at prices of better German machinery. Monitoring of loan and company is the second point of failure. Banks have no mechanism to even read financial statements and detailed discussion on business and market situation are largely absent. This is where there is a big hole in process and skill sets. Seeing through accounting jugglery to get to liquidity situation is unheard of and thus banks are the last to know only when there is a complete breakdown. Well let’s not forget banks have annual RBI audit which has also failed us completely. RBI officials are as clueless as the banks and that’s why the problem reached a crisis point. Central Bankers need to be far more alert to sectorial problems and market issues and have failed in their task of guiding or helping banks manage the exposure to select sectors. The ecosystem of government owned banking companies is bereft of requisite talent and before the government throws good money after this debacle it should realize nothing would change till the working changes. The place to start is RBI Banking Supervision Department, which is wholly inept and not accountable to boot. If they are strong and good many a positive action can follow. As long as banks can fool the central bankers it will be déjà vu again. Accountability is critical to send a message out but without major changes in bank working and upgrading skill set of employees they will be prone to make have more failures i.e. defaults than successes. The blame game can restart with a new set of players.(The writer is CEO, Dimensions Consulting)