NPAs rising because of inadequate system checks: Bimal Jalan

Former RBI Governor Bimal Jalan said public sector banks could be saddled with bloated non-performing assets because of the absence of accountability within the system.

“Part of the reason (for huge NPAs) is of course the slowdown in the economy because earlier expectations were high and so therefore the credit expansions were quite high…but that does not explain the whole NPA problem today. If you put the public sector banks in one bracket and the other banks in another bracket. You will find the NPAs in the first sector were higher.…That there is much less of a price to pay if you make the wrong assessment of credit worthiness in a public sector bank, where accountability is a problem,” he observed at an event organised by MCC Chamber of Commerce & Industry here on Monday. “The issue is important and the answer that we have to think about is to how to make the management accountable, the management of the institution accountable rather than the ministry of the Government,”

He, however, felt that the public sector banks should be free to run the bank without government intervention, but at the same time, they should be held accountable. The Government can set the priorities for the banks, but should not intervene in its commercial decisions, he added.

“There is no contradiction in the principle of financial inclusion and the fit and proper criteria, these scrutinised criteria are to make sure that the other people’s money which one bank deals with are disbursed, allocated in a manner which is appropriate properly,”

In case of interest moratorium sought by some debt-laden States including West Bengal, the former RBI Governor said there had precedence of allowing moratorium to States. “Moratorium had been given in past during any crisis or problem like drought and security issue," Jalan said. It was a different matter if the fiscal situation – fiscal deficit or CAD -- did not permit allowing such moratorium, he told reporters after the session.

Jalan said: “I want for more money and central assistance for West Bengal, but ultimately the issue is to be fair and accountability for distribution of resources among different states and principals which are decided by the Finance Commission." He felt there was need for revisiting Centre-State relation in term of redistribution of resources. Jalan also felt that there was room for greater coordination between RBI and the Finance Ministry in case of determining lending rates and providing impetus for growth. He said his personal opinion did not support the concept of a “Super regulator” with supreme oversight authority over the financial, capital market and banking sectors.

COMMENT NOW