Friday, March 26, 2021

Who will hold the NPA Monkey on shoulder?

Who will hold the NPA Monkey on shoulder?

NPA is one of the biggest problem of the economy. Entrepreneurs take risk, hold it for some times and when find it difficult to hold anymore, then ran away transferring the risk on the shoulders of the banks. Banks give interest to depositors and make business by landing to the borrowers, mainly the entrepreneurs. The CD ratio (Credit deposit) comes to around 79%. But banks face NPA and frauds. On an average, every year, they may be losing millions in NPA and ₹25-40000 crore in frauds. The GNPA (gross non performing advances) climbed to ₹ 10 trillion, nearly 12% of the the total advances. It may turn into a black hole, if not stopped, may suck the banking system. 

NPA is not new to India as all the countries in the world face this problem.. How much gap one may fill up by printing of notes? There are limitations.. Currency notes in circulation were approximately ₹16000 billion during demonstration and now may be ₹18000 billion. When Lira were printed in millions, the economy of Italy was ruined and the phrase लीरेलीरा, became a common man’s term of falling of the value of the currency. 

How does US Banks and Govt deal with the problem? I asked to a friend in US.. He replied:

They do here following ways

1. Let borrowers pay interest only for few years.
2. Bank sale note with discount to other parties. 
3 . They offer borrowers to discount and pay off the note.
4. Bank will forclose a property and take a receivership and transfer deed to bank’s name then sale a property to open market. That means bank is taking a loss and move forward.
5. If loan is backed by government guarantees then whatever is the shortfall, the government will reimburse to the bank. And government authority will try to collect money from borrowers in smaller installments without interest if borrower is able to pay. Otherwise government will write that off.

Interestingly in USA, most of the banks do loan with government guarantees. 

Is our economy ready to follow such model? Can government guarantee the landings? Big question. The entrepreneur fallen in the debt trap before sinking may ask for the remedies. He is unable to pay the instalments and unable to sell the property in the market because of the mortgage. When bank takes over the property and put it in auction, the price of the property goes down to half or below. Can’t the parties safeguard their interests but encase the full value of the property by some other means? 

Which side to move? Black hole of NPA may shuck the economy if not stopped. Some Public Sector Banks are under the watch in the ICU. Weak and Strong joints of merger may repair few. But they are in need of injections of money.. How much you can inject? From where? It will be in trillions. And there is a huge line of the borrowers waiting for the new credits. In Gujarati, there is a proverb: એક સાંધો ત્યાં તેર તૂટે. The economists of the country may have to find out some solutions to the problem with the help of the new Governor of the RBI. And the citizens have to play a big role as nationalists to bring out the economy from the problem by increasing their domestic savings, increasing spending and move on to formal economy. 

15 December 2018


Post a Comment

Powered by Blogger.