Forget banks of future, ‘I am concerned about future of banks’

RBI Deputy Governor K.C. Chakrabarty on Saturday lambasted public sector banks for the rising bad loans, saying they sat on the “menace” far longer than their private sector counterparts.

In a well-researched presentation at Bancon 2013, an annual banking conference, the Deputy Governor also rubbished claims by banks that non-performing assets (NPAs), or bad loans, have been rising because of the economic slowdown.

On the theme of the Bancon 2013 — ‘Banks of the future: Gearing up to meet the emerging environment’ — Chakrabarty said: “As a regulator, I do not have the luxury to talk about the banks of the future; I am more concerned about the future of the banks. One factor affecting the future of the banks is non-performing assets.”

He provided data to establish that NPAs had started rising from 2007, before the financial crisis. He said fresh slippages showed a declining trend from early 2000s, but started rising since 2006-07.

It is not as if the economic slowdown has affected “public sector banks alone”. Private sector banks and even foreign banks have been able to deal with the NPA menace better, Chakrabarty added. The key, according to him, was that these banks identified the problem earlier.

The central banker underscored the importance of regulation in dealing with the NPA problem. “Banks ask for softer regulations (for provisions) when NPAs increase, while data show that when regulations are tightened, asset quality improves.”

Prudential norms (like higher provisioning) are in the interest of the banks, he said, urging lenders to put in place a contingency plan when they lend to infrastructure-based projects such as coal mining and gas-based plants.

When pointed out that public sector banks face excess stress because they have to lend to public enterprises, Chakrabarty said: “For government companies, the project appraisal has to be more stringent. The more powerful the borrower… your appraisal has to be more stringent.”

Responding to the comments, K. R. Kamath, Chairman and Managing Director of state-run Punjab National Bank, said: “We have to learn from the past and utilise the opportunities that are available to us.” Kamath, who is also the Chairman of the Indian Banks’ Association, termed the deputy governor’s speech as “introspective.”

On the point about banks pulling the plug on wilful defaulters, M. Narendra, CMD, Indian Overseas Bank, said banks are slowly moving in that direction.

(This article was published on November 16, 2013)
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