NPAs and Growth

There is a lot of talk, on NPAs (Non Performing Assets) in India. Some of us who have served this economy for decades are concerned that the talk is veering away to surgical action, which may, in its sweep, eliminate many who are themselves not to be blamed.

NPAs correction effort has taken a 'tsunami-cal'  proportion, in the country with the Governor using every opportunity to hype on it and create a sense of panic, with the obvious good intention of doing something which he considers is essential and to be done now.

Is every one over board on this? Is there a better way to go about this?

These are the questions which come up in the minds of executives who are faced with the broader effects of corrective action initiated by the banks whose licensing authority has started flexing their muscles.

Two interesting pieces, one the leader in 'The Hindu' titled 'Of Banks and Books' and the other one Mr. S S Mundra's comment 'Some borrowers indulging in round tripping', capture some of the key elements and indicate the actions that may follow.

For me the problem of NPA should be treated like a cancer which has spread on a human and not like a parasite which has infected the farm fields. The treatment should therefore factor in the psychological, social and day to day existence needs of such companies and group entities, especially their employees, when they are treated through various therapies, like limiting fresh borrowings or denying extension of existing facitiltie, fresh infusion of capital, day to day management take over, asset sales etc.

In the larger picture, as in the case of human cancer, where plastic usage and tobacco abuse are monitored and controlled, the reasons for cash flow deficits, should be ascertained for that is the source of cancer. If it is due to a delinquent party of  the contracts, which typically is a PSU or the Government itself, the banks must, through their network at South block, insist on corrective action and correct the anomaly of the Big Buyer passing on risks that cannot be manged by the companies, under the guise of 'audit query'. Non operable payment terms and payment terms which are not operated are classic issues which add up to the trouble. Follow up action by these entities, by way of encashment of Bank  Guarantees add to the woes of companies which add to NPAs.

This comment must not be read to defend the actions of some individuals whose birthdays figured in the  comment of the Governor. Such individuals and companies, must pay.

But given the downside the economy is facing, through pressure from falling exports, stagnating domestic demand, reforms through land bills and GST stuck, fresh infrastructure investments not emerging, the efforts to clean up balance sheets of banks should be done but through cautious individual actions. Executives of the banks must be trusted to nurture their 'cancer' infected clients and are ill advised to treat them all with a spray of pesticides from the air, which they may if undue pressure is exerted on them.