NPA in Indian Banks-Year 2002-03 - Review at the end of A Decade
Efforts vs. Results - Conclusions
The process of planning strategies for containing NPAs so far is primarily by RBI and Government of India. Even 10 years after deregulation, the initiative has not shifted to PSBs, who are exclusively looking to RBI/GOI for ready-made solutions. On its part RBI has taken every conceivable steps at its level. RBI has also pointed out as under:-
"Any solution to the overhang problem of large magnitude requires well-crafted medium to long-term actions, devoted to specific definition of goals and negotiation of the process rather than ad hoc approaches.
"Needless to mention, a lasting solution to the problem of NPAs can be achieved only with proper credit assessment and risk management mechanisms. For instance, in a situation of liquidity overhang, the enthusiasm of the banking system to increase lending could compromise on asset quality, raising concerns about adverse selection, and the potential danger of addition to the stock of NPAs. It is, therefore, necessary that the banking system is equipped with prudential norms to minimise, if not completely avoid the problem.
"As regards internal factors leading to NPAs, the onus for containing the same rests with the banks themselves. This would necessitate organisational restructuring, improvement in managerial efficiency, skill upgradation for proper assessment of credit-worthiness and a change in the attitude of the banks towards legal action, which is traditionally viewed as a measure of the last resort".
The above remarks of RBI, in effect, are explicitly, addressed towards the individual banks. Now what are the internal factors? Has any PSB at its level identified these factors?
Have the PSBs conducted micro-analysis on the overhang problem of NPA relating to principal categories of advances- selecting cases of concentration of NPAs at specific locations, areas, or Branches acutely suffering this problem. The problem at length was earlier posed by me on this website in the article Focus at Anomalies at the Credit Delivery Centre -- A Detached Survey of NPA from within the Credit Agency. It needs courage and tenacity on the part of the top management to order such a probe/review, as this may also result in bringing out many skeletons hiding deep inside the cupboards. So it was Zonal Manager, Delhi of MYBANK refused to open his cupboards, when I went there for investigation in the year 1994, and when I pointed out the impropriety and questioned him "why you are not opening your cupboard- What is there inside these cupboards, he felt hurt and complained about me to my GM. These are past story.
More than conducting such a probe, drawing the right conclusions/solutions and disseminating that knowledge widely amongst all credit-decision takers at every level is the type of action that is needed in the Knowledge Management era. But Banks have not yet come forward. When it comes for assessment, they prefer to underestimate the load of NPA through subtle statistics based on NPA level as a percentage of the ever growing aggregate credit. They suffer, but feel shy of expressing the magnitude of their problem or look deep towards finding the contributory factors. Today the pattern of business strategy is to invest bulk of resources in government securities, lend minimum and thereafter present NPA as a percentage of the total assets. You can see this in the data presented. For SBI group NPA is only 2% and for Nationalised banks it is 2.16% (of total assets). Does it not give a rosy picture. But if I tell you that SBI has an accumulated overhang of NPA at Rs.14430 Crores (out of aggregate advance of Rs.120806.46 Crores), the magnitude of the threat is brought back. Similarly if I point that PNB was loaded with a fresh accretion of Rs.868.19 during year 2001-2002, resulting in a overhang of Rs.3126.77 Crores (Gross NPA ) out of total credit outstandings at Rs.34369.42 Crores as at 31.03.2002.
In an effort to find the crystallised thinking of the Banks on the subject, I searched, by way of test cases, the websites of SBI (the market leader amongst PSBs) and PNB (the largest and the oldest of the Nationalised Banks). SBI has not published detailed statistics of the movement of NPAs for the year ended 31.03.2002, as per guidelines of RBI on its website. It has however enunciated its policy of NPA Management in the following words:
"The Bank's NPA management has assumed critical importance and is receiving focussed attention at all levels. At the corporate level, a Task Force comprising top executives monitors all NPAs above Rs.5 crore. At Local Head Office level, the Circle Management Committee monitors all NPAs above Rs.1 crore. The NPA management policy lays stress, inter alia, on early identification of problem loans, effective response to early warning signals, appropriate recovery strategy including one-time settlement. Other measures taken by the Bank include upgradation of appraisal skills of the officers dealing in credit through special training programmes and an effective credit audit mechanism, which throws warning signals for taking action to prevent performing assets turning into non-performing ones. For close monitoring of cases with Debt Recovery Tribunals (DRT), the Bank has nominated nodal officers in the DRT cells in the LHOs. The Bank has nine specialized Rehabilitation and Recovery branches to focus on BIFR cases and large value accounts especially in doubtful and loss categories. As a part of cleansing its balance sheet, the Bank has written off NPA accounts with high level of provision and the outstandings are held in Advances under Collection Account for further follow up.
"Under the RBI-OTS scheme (ended on 30th September 2001), the Bank approved one-time settlement for Rs.1,059 crore in respect of 3.31 lakh accounts. Also under SBI-OTS scheme (ended on 31st December 2001), which was for settlement of NPAs with outstandings up to Rs.1 crore, the Bank approved OTS for Rs.32.94 crore in respect of 0.19 lakh accounts. Similarly, under the RBI-OTS-II scheme for settlement of small loans up to Rs.25,000, the Bank approved OTS for Rs. 21.02 crore in respect of 16,000 accounts and recovered Rs.16.84 crore. At end-March 2002, the Bank's gross and net NPA stood at 11.95% and 5.63%, respectively, as against 12.93% and 6.03%, respectively in the previous year."
The above narrative does not specify the quantum of Gross/Net NPA in terms of amount. But as the aggregate credit of SBI is stated officially as Rs.120806.46 Crores and Gross NPA at 11.95%, it is possible to calculate and arrive at its Gross NPA in terms of amount as at 31.03.2002 at Rs.14430 Crores approximately. But the amount provided by SBI against this overhang and the amount of its net NPA cannot be ascertained. As also Recoveries in NPA and fresh additions to NPAs in the year. To this extent there is lack of transparency.
The policy statement of SBI is merely an attempt to catch the bull by seizing its tail instead of its horns, i.e. through an action at the terminal level in place of at the originating root. A generalised statement saying "The NPA management policy lays stress, inter alia, on early identification of problem loans, effective response to early warning signals, appropriate recovery strategy including one-time settlement. Other measures taken by the Bank include upgradation of appraisal skills of the officers dealing in credit through special training programmes and an effective credit audit mechanism, which throws warning signals for taking action to prevent performing assets turning into non-performing ones." Upgradation of appraisal skill is a innocuous statement. What are the specific ingredients, the overlooking of which result in NPA? Could not SBI one of the Global-sized organisations impart KM management tools in tackling this problem and bring out guidelines for grass-root level implementation? Why not take the rank and file into confidence to add knowledge inputs through research and investigation on a wider scale from the base level?
The Bank respects transparency better than SBI. It has published detailed statistics on the movement of NPA for the year 2001-02 (ending 31.03.2002)as under:
|NPA Recovered during the year
|Fresh NPAs Added
|Closing Balance of NPA
But PNB has no policy inputs to offer and amplify how it proposes to come to grips with the problem or the way of containing it. Both SBI and PNB hold share capital contributed by the public and both the banks are committed to implement corporate governance. The website is the source of information channel for the share-holders. Will the shareholders of any one of these two banks be wiser about how the respective banks are poised to tackle this problem?
Individual banks are not firm with finding a policy towards a lasting solution. They are happy if comparative figures depict some progress by way of percentage reduction of Gross/Net NPA. Otherwise there is no commitment or concern for a permanent solution.
So much emphasis was laid about shortcomings of the legal system. But now the Securitisation & Asset Reconstruction Act is on the statute book. Will this solve the problem? We will look more on this subject in the articles on the relevent topic.