Sunil Kanoria's article, "A way to tide over the NPA problem" (February 25) suggests a standstill period of five years under strategic debt restructuring (SDR) and the creation of an India Revival Fund in line with the US Troubled Asset Relief Program of 2008. There are talks of forming a bad bank that will take over the non-performing assets of banks. For that, the government has to provide Rs 4 lakh crore, the estimated amount of NPAs as on March 31. This figure will rise till March 2017, the last date for cleaning up the balance sheets of banks. Making arrangements for such a proposition does not seem realistic.
Banks are incurring losses due to higher provisioning on sick advances. This time they have somehow got by, as they have operating profits and margins on capital funds to fall back on. In the next quarter, operating profits would drop on account of increase in NPAs, causing some banks to register operating losses.
The burden of entire provisions will then be upon capital funds. With the squeezing of capital, the scope of further lending will be reduced. Even if the government provides capital, that will get absorbed in provisions. The only alternative left is recovery, that too at the earliest, to keep funds rotating and the business of banks growing. The accounts identified under SDR are deadwood; giving them a five-year standstill period will lead to the death of banks.
The survival of public sector banks (PSB) depends on increasing income and reducing cost. In the present situation of an economic downturn, avenues for income enhancement are limited. The best way to reduce cost is through the merger of PSBs. The exorbitant establishment costs of similar products of one owner, the government, are not judicious. Let the private sector take over the reins of the financial services sector.
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Banks are incurring losses due to higher provisioning on sick advances. This time they have somehow got by, as they have operating profits and margins on capital funds to fall back on. In the next quarter, operating profits would drop on account of increase in NPAs, causing some banks to register operating losses.
The burden of entire provisions will then be upon capital funds. With the squeezing of capital, the scope of further lending will be reduced. Even if the government provides capital, that will get absorbed in provisions. The only alternative left is recovery, that too at the earliest, to keep funds rotating and the business of banks growing. The accounts identified under SDR are deadwood; giving them a five-year standstill period will lead to the death of banks.
The survival of public sector banks (PSB) depends on increasing income and reducing cost. In the present situation of an economic downturn, avenues for income enhancement are limited. The best way to reduce cost is through the merger of PSBs. The exorbitant establishment costs of similar products of one owner, the government, are not judicious. Let the private sector take over the reins of the financial services sector.
Tilak Gulati Kolkata
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number