Tuesday, March 29, 2011

What is Gross NPA in banks


Now almost all public sector banks are on CBS platform. Most of the banks are providing alternate channel like ATM, net banking, phone banking, and mobile banking for doing banking transaction within moments sitting any corner of the country. Banks have added new works like insurance, demat, mutual fund, consultancy and portfolio management in their area of operation. Almost 90 percent of bank’s branches are providing online banking facility.

It is the time as also it is very much comfortable and convenient for Reserve Bank of India and Ministry of Finance to properly look into each aspects of bank’s functioning to maintain good health of banks instead of completely relying on financial data submitted by such banks or various certificates produced by banks as per whims of RBI. It is now easy for banks to use new technology platform to declare all bad assets as NPA instead of hiding them to save corrupt officers and top ranked executives from punishment for their ill motivated landings. Unfortunately, the ground reality is that technology is used by corrupt bankers to conceal bad loans and to allow credit to bad companies to earn more and more illegal money through bribe. The regulator and the protectors like RBI and CAs are themselves not aware of intricacies of the new technology and they are unable to catch hold of real culprits who are playing fraud with bank’s fund for their vested interest.

Giving false certificate and fabricating balance sheet as per suitability has become a fashion not only in banks but all public sector companies and all government departments. Chartered Accountants on whom lies the responsibility of verifying the records of bank’s transactions and certification of balance sheets do their holy work blindly. They need money for their signature and they are least bothered of quality of lending done by banks or health of banks or future of customers if the assets shown by banks in their balance sheet go bad or are already bad. The more illegal money CAs receives from the company or the individual the more quickly they put their signature on balance sheet and certify all irregularities hidden in BS.

This is why managements of banks are able hide their bad assets and government is able to hide their dirty politics.

This is why not only Satyam Computers succeeded in committing large scale fraud in their balance sheet but almost all companies and firms are indulged in tax evasion in nexus with CAs and government officials.

This is why that almost all top ranked officers in banks are indulged in bribe led lending taking the support of branch level officers and auditors. In the recent past 8 top ranked officials of banks were caught by CBI in bribe led lending.

This is why banks are able to hide their bad assets and top ranked executives of banks are not punished and get retired after accumulating huge wealth through bribes.

But government officials and RBI perhaps willfully keep their eyes and ears closed and allow banks to sink as long as they also get due share in bribe money bank officials receive from their clients. All promotions and selection of ED and CMD are linked to illegal money which are transacted among various lobbyists who manage proper posting and easy promotions of corrupt officers and who manage concealment of charges leveled by public and media and acquittal in vigilance findings against erring bankers. Same culture is followed by ED and CMD of a bank for their subordinates.

It is therefore need of the hour that RBI officials ensure that all banks categorize their bad assets as Non Performing assets and initiate appropriate action not only to recover bad loans from bad borrowers but also initiate disciplinary action against corrupt Branch Head and corrupt Regional Head or Zonal Head who sanctioned bad credit only to earn illegal money in form of bribe from borrowers. If all bad assets are declared NPA strictly as per RBI norms I think total gross NPA of public sector banks will at least be five time of what they have already declared. RBI should ensure that talented CMD and ED of the bank do not bring about any change even in the machine i.e. online technology. Year after year, banks are using the tools of restructuring, rescheduling and rephasing of banks bad loans to keep such bad loan in standard category.

If all bad assets are declared as bad, if all corrupt officers are removed from the administrative offices and if legal system is made effective and active to recover the money from bad borrowers and willful defaulters , there is no doubt that banks will exhibit real growth and always remain in good health. Cooked balance sheet and hidden bad assets otherwise grow to such a large extent that RBI will have to , as usually they did in the past merge the weak and sick banks with some other bank or provide capital for survival of the bank. Present position is that almost all Public sector banks are sick and on the verge of death. I am therefore unable to visualize which bank will be merged with which strong bank. None of banks including SBI is strong to sustain for longer period without the support of the government.

It is therefore desirable to first understand the reality of bank’s health and then to ponder over the remedies , instead of putting carpet on bad loans every quarter and postponing the CBS led classification of bad loans for future every time on the plea of corrupt bankers. Only when truth of bank assets is revealed, only when health of banks is thoroughly checked by honest experts and only when corrupt bankers are booked to task, the real magnitude of ill effects of Manmohan’s reformation policy applied for banks will surface.

Banks are about to close their books on 31st of March and it is the duty of RBI to ensure that every bank classify bad assets using new technology only. If there is a will there is a way.

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