The rising levels of NPA in Indian banks have become an alarming concern. The question that raises is – Who is to blame for the situation? Banks? Banks are alleged to be the primary reason for the mounting number of bad loans. Whether it is about the poor lending practices or the coercive measures adopted to recover the loans – banks are receiving an onslaught of criticism.
However, the reality is that there are many other factors that contribute to making increasing NPAs a widespread disease. These factors can be the ineffectiveness of policies under DRTs or SARFAESI, warring political parties influence and more.
But, rather than analysing what the reason is, the bigger priority is that banks and financial institutions take strict steps to control the increasing number of non-performing assets. It is rightly said, “Prevention is better than cure” and it fits aptly in today’s NPA scenario.
1. Following a conservative approach
Banks need to be more cautious while lending loans to sectors that demands huge capital and is prone to becoming delinquent. They need to follow a conservative approach for loan disbursement particularly in cases where the repayment tenure is stretched over a long period of time. Considering the infrastructure industry in general – rather than banks, they can be funded by the Infrastructure Debt Funds (IDF) that have separate, distinct recovery mechanism and help keep control over the NPA levels while enabling infrastructural development.
2. Loan restructuring is secondary
Financial institutions (FIs) must take necessary actions right from the time a loan request is raised from the borrowers. This means they must identify all possible modes of repayment and ensure instalments and EMIs are paid in time. They must not wait for the time until loans become delinquent and have to be restructured in the end.
3. Adopting innovative means of tacking NPA
Bearing in mind the ever-growing and unstoppable rise in NPA, it is high-time banks and FIs adopt innovative ways to treat them. There is an immediate need to use advanced tools where banks can have detailed insights on customer behaviour and their repaying capacity to make effective lending decisions. They must also find aids to contact borrowers for recovering loan instalments in case of failures and take legal actions whenever required.
Non-performing assets are a great threat to not only banks but the Indian economy on the whole. The nation’s progress depends highly on the macroeconomic stability, which can only be attained when the NPA in banks remain in control. Not much should be expected only from the government to come to the rescue of banks. Instead they must themselves be empowered by taking corrective steps, placing effective recovery policies – on-time, and way before they buckle.