Thursday, June 28, 2012

System Generated NPA in Banks

RBI deputy governor KC Chakrabarty says banks misguiding investors on bad loans

MUMBAI: Reserve Bank deputy governor K C Chakrabarty today flayed banks for attributing their sudden fall in profits to the computerised system of recognising bad loans and said this is tantamount to misguiding investors. 

"You have misguided your investors for the past five years by not giving your proper NPA (non-performing assets) figures," he told a banking technology summit organised by the industry body CII here. 

The senior-most deputy governor who oversees the banking services at the monetary authority, also wondered as to how an inanimate object like the "system" can generate NPAs and said the markets regulator Sebi should look into this issue. 

"Should not the (markets) regulator (Sebi), who is dealing with listing, should take action against the banks?" he asked. 

Wondering how even after computerisation, banks are unable to identify NPAs, Chakrabarty said, "so long as system- generated NPAs were not there, was the computer giving wrong figures?" 

The deputy governor's comments come in light of a slew of banks, especially the state-run ones like Central Bank of India and Union Bank of India, among others, reporting massive dent in their profits and attributing the same to migration to the system-generated approach of identifying bad loans, over the last fiscal. 

"I do not want to negate what he (Chakrabarty) said. But it is not that on a very big scale the bankers have all of a sudden come out with this situation," Central Bank Chairman and Managing Director M V Tanksale told reporters when sought for his comments on the sidelines of the same event. 

Tanksale also explained that his bank, which ended the last quarter in the red due to higher NPAs and restructuring due to (power) distribution companies' exposure, showed a spurt in NPAs because the other banks got two to three years to migrate while his bank got only nine months. 

Union Bank's newly appointed Chairman and Managing Director D Sarkar conceded that in the manual system of NPA recognition, some liberty was taken during external or internal audits, while the new system-based approach takes a very methodological view on the same.

Interest rates can’t drop as long as inflation is high: Chakrabarty

1 comment:

majji js murthy said...

It is not correct to blame the technical snags about system generated NPAs. The software is designed to identify NPAs based on various parameters fixed for calling an account NPA. Banks have spent hundreds of crores for the software they are using. If the spurt in NPAs are due to defects in the software, then the top managements of the banks should fix accountability on the officials who have cleared using such defective software for NPA identification. Let the truth come out.