If you are one of those who are paying your bank loan interest on homes, cars and other necessary things through your nose on time, it seems you are doing a service to the bank. The ordinary mortals are afraid of defaults, extra charges and even harassment from banks. But corporates, clearly, are not, as per the deputy governor of RBI KC Chakraborty. Since the beginning of the current fiscal, as this newspaper reported on Wednesday, quoting Chakraborty at a public function, banks have seen up to 85 per cent rise in NPAs or non-performing assets, the term that refers to loans which have stopped giving the banks any income. Earnings to the tune of the loans are no income for banks but the interests are and hence the banks are in a quandary as to how they should address the heaps of NPAs, most of which are results of corporate default.
This not only means that the banks are suffering huge losses because corporate loans are of hefty amounts but also that the risk perception of the bank is on the rise, ensuring that the disbursal of further loans become a cumbersome issue. Banks are also in no position to bring down interest rates which they would, if the NPAs would go down sharply.
Also, in the first two quarters of 2012-13, banks have reportedly referred a record number of 74 cases, involving a total debt amount of Rs 40,000 crore for restructuring, which is a large amount. This may not immediately mean that the economy is in a bad shape with so much debt-restructuring being pleaded for, but this is neither a sign of an economy in the pink of its health, especially if the cases have piled up recently. This cycle of bad loans, high interest and debt restructuring ensures that economic growth is hampered and banks play the safe ball eventually, which is an undesirable situation for a growing economy.
Chakraborty has suggested that corporates increase productivity and efficiency to convert NPAs into performing assets but that may be not the only solution. Clearly, and as Chakraborty has highlighted, the honest are paying the money and the price for the crimes of the inefficient and the dishonest. This cannot go on. Corporates must be accountable and come under heavy weather if they dither with loans, just as individuals are. After all, much of this is public money. They cannot simply get away with a bad debt and a few less zeroes in their ledgers. RBI must take up steps to ensure that NPAs are converted to assets and may even have incentives for honest and regular borrowers who pay back on time and greater penalties for defaulters. Or this cycle is most likely to continue in a climate in which the economy is anyway not going great guns.
This not only means that the banks are suffering huge losses because corporate loans are of hefty amounts but also that the risk perception of the bank is on the rise, ensuring that the disbursal of further loans become a cumbersome issue. Banks are also in no position to bring down interest rates which they would, if the NPAs would go down sharply.
Also, in the first two quarters of 2012-13, banks have reportedly referred a record number of 74 cases, involving a total debt amount of Rs 40,000 crore for restructuring, which is a large amount. This may not immediately mean that the economy is in a bad shape with so much debt-restructuring being pleaded for, but this is neither a sign of an economy in the pink of its health, especially if the cases have piled up recently. This cycle of bad loans, high interest and debt restructuring ensures that economic growth is hampered and banks play the safe ball eventually, which is an undesirable situation for a growing economy.
Chakraborty has suggested that corporates increase productivity and efficiency to convert NPAs into performing assets but that may be not the only solution. Clearly, and as Chakraborty has highlighted, the honest are paying the money and the price for the crimes of the inefficient and the dishonest. This cannot go on. Corporates must be accountable and come under heavy weather if they dither with loans, just as individuals are. After all, much of this is public money. They cannot simply get away with a bad debt and a few less zeroes in their ledgers. RBI must take up steps to ensure that NPAs are converted to assets and may even have incentives for honest and regular borrowers who pay back on time and greater penalties for defaulters. Or this cycle is most likely to continue in a climate in which the economy is anyway not going great guns.