Giving the Reserve Bank of India more powers to tackle NPAs is not enough

1 June 2017
Author: Rajiv Kumar, Pahle IndiaRecent amendments to the Reserve Bank of India (RBI) Act have drawn plausible fears that the RBI will micro-manage commercial banks, especially public sector banks (PSBs). The RBI possesses neither the expertise for appraising the potential and prospects of non-performing projects across sectors, nor the capacity to evaluate turnaround strategies. But these criticisms miss the underlying purpose of the amendments.

Reforms aim to shield commercial banks, especially PSBs, from the vagaries of the 3Cs — the Comptroller and Auditor General (CAG), Central Vigilance Commission (CVC) and Central Bureau of Investigation (CBI) — that have completely paralysed decision-making in public sector banks. The fear of retroactive open-ended enquiries by the CAG, CVC and CBI makes decision-making, especially for accepting losses, an anathema for PSB managements.

PSB managements have no desire to accept responsibility for non-performing assets (NPAs). The chief concern for the head of a PSB is to have a peaceful retirement, hopefully as an independent director on several well-paying private company boards. Nobody wants 3C officials knocking on one’s doors a few years into retirement. This is irrespective of the adverse impact a build-up of NPAs may have on a bank’s balance sheet, on sector prospects or even on the state of the economy.

Read the full article on EAST ASIA FORUM. 

Updated:  5 June 2017/ Responsible Officer:  SARI director/ Page Contact:  SARI director