It’s surprising how several problems simply solve themselves if we wait long enough. But if that problem happens to be bank NPAs, it may be wishful thinking to use time as a healer. For years, banks, government and the central bank have been telling everyone to wait just a little longer while they clean up the muck, and so we did. But recent quarterly losses by 21 state-run banks in excess of `60,000 crore—the highest-ever in Indian banking history—proves that all past efforts to wipe off toxic assets appear glib. One may even wonder if the closets from which frauds and loan defaults are tumbling out have an infinite width.
These losses, critics argue, are primarily due to the apex bank’s stringent NPA recognition framework and higher provisioning that will force banks to hold out the begging bowl for cash to meet Basel III capital requirement norms. The losses are also partly due to lower net interest income, or core income, which a bank earns lending money. Credit growth is struggling to come out of its torpor, but lenders like IDBI Bank have freezed corporate lending, which will further affect interest income. Investors probably should forgo their profit-love and anticipate more quarterly losses.
On its part, the RBI is tactful and working with a single-minded focus to resolve the `10 lakh crore bad loan mess in a time-bound manner. The shortlisted 41 large accounts, requiring immediate attention, are in various stages of resolution with some accounts finding buyers ready to plonk down billions and revive operations. This is good news for banks endlessly waiting for loan recoveries. But what’s unnoticed is the same lenders may fund the transaction, which can be termed fresh lending, but remember the chances of NPA rot repeating haven’t subsided. For, the RBI’s bobbed and weaved NPA norms will only help banks dress up balance sheets back in shape, while what we need is regulations that prevent the very occurrence of bad loans.