Bnakers cannot always blamed for NPAs, says Rajan

Banks today got support on the issue of bad loans from the most unexpected quarters - Reserve Bank Governor Raghuram Rajan, who said bankers cannot be always blamed for the rising bad loan situation.
"Let's be a little bit careful about attributing all that has gone wrong in terms of NPAs just to the incompetence or malfeasance by the bankers," Rajan said while delivering the DR Gadgil memorial lecture here this evening.
Answering a question on rising NPA levels in the banking system, Rajan said there are instances of a loan that was good in 2007-08 turning out to be a not-so-good loan in the light of the global turndown in 2012, in the light of the domestic slowdown in the past few years or due to domestic issues with governance.

"Given that situation, we have to be careful ... Yes, we have to improve banks' risk assessment upfront, give them more tools to secure assets, to go after defaulting borrowers, but we shouldn't completely discourage banker's incentive from taking risks," Rajan said.
The Governor said the difference between a banker and a machine is that banker reacts to a situation and if there is a situation which requires rescheduling of the loan, he can do it; and if the situation warrants more lending, he can do that as well.
"If it is so easy to do banking, we would replace them all with machines. (But) we can't do that. So, let's be careful that while trying to fix the incompetence and the malfeasance, of which there is some, let us not attribute all of the problems to that, and in the process, tie the bankers' hands so rigidly that they can no longer restructure loans ... there are good bankers also," Rajan said.

He, however, admitted that there is a need to put in place a better system for recovery of bank assets saying we need far documentation on collaterals and an urgent need for corporate bankruptcy system.
On issuing banking licences 'on tap', Rajan said the system will be adopted after the current round of granting banking licences are over.
"We have on our website a discussion paper on what varieties of banks could emerge and overtime after we have given put the new banking licences we will take a closer look at what we have learnt from process and what it implies for the broader issue of giving licences on tap," Rajan said.