NPA Treatment by Banks : Cleaning of Books

This fourth and last quarter of financial year 2015-16 is going to be one of the most crucial period for Indian banking industry due to clear cut instructions by the authorities to clean up the balance sheet. Indian banks are passing through a very sensitive phase of cleaning the balance sheet. Restructuring or Revival has become too difficult after scrapping of the CDR Cell. Banks are now free to take decisions individually nd individualistic now. Every bank has to take the call independently. Post scrapping of CDR mechanism, the joint decision making process is done away. In this situation the decision will be based on the security and realisable value held by each lender separately. Every bank will take its own call irrespective to the situation of other banks' decision. Revival efforts to save the company from going into liquidation will not be considered at all. This situation will be most impractical for the stake holders particularly employees and unsecured creditors. Legal battles will take their own course and ultimately good units will also die. 

It seems the banks particularly public sector banks will be tough enough to clear the balance sheet without giving proper thoughts to revive. This may result into more and more unemployment in ge country. Also small entrepreneurs who are passing through the stress will not be able to sustain such situation and large corporates will be benefited more and more. The situation is really very alarming and needs immediate review by all the concerned parties.

If NaMo government is pushing for a special institution to handle stress accounts, proper mechanism to keep stressed companies live is more desirable. Bad bank ( bank for stressed and default borrowers) is a good idea provided such decisions are taken on urgent basis as Indian banks are sitting on a time bomb of huge NPA accounts. Good to support new start ups but equally important to hold on the existing organizations. Millions of people have already lost jobs in last two years, non action may lead to further unemployment.