Banks have to develop expertise in assessing the actual credit potential of different sectors. The main reason for NPA growth is overflow of credit to few sectors

The Non-performing asset (NPA) resolution effort is peaking up in the banking sector. NPA in banks galloped between 2006 and 2011. From 2014 onwards, the NPA gathered momentum and sky rocketed from 2016 to reach an alarming level in 2017.

The Union Government and the Reserve Bank of India (RBI) has taken a slew of measures to tame the NPA like a bull in the Jallikatu of Tamil Nadu.

The Central Repository of Information on large Credits (CRICl) gathered all exposures above Rs 50 million in banks. The CRICl data, based on loan exposures with classification is given to all banks to rein in the NPA.

For the first time a data base is prepared with classification of different kinds of assets in banks. A dedicated asset quality review was done by the RBI to reach close to accurate NPA figures. This is a positive move to understand the asset quality in banks under different circumstances. The banks have been asked to report on default in repayment on a weekly basis.

They are given flexibility to deal with the borrower's multiple exposures with different banks. Banks have to file insolvency applications against borrowers with large distressed assets. RBI has also taken Prompt Corrective Action (PCA) to prevent banks from falling into the NPA trap.

PCA is applicable to banks which have NPA above 10 per cent after making provision for bad loans. All these stabilization efforts may halt growth for the time being but banking cannot be a business proposition without stabilisation.

The point is whether so many actions, reactions, corrective measures and prompt actions will give banks the much needed stability. In the meantime, thirteen public sector banks  together have losses amounting to $8.6 billion for the year which ended on March 31, 2018. In fact, the much needed stability comes from quality human resources which does not mean tech savvy, English speaking, well-dressed management gurus but people with knowledge, skill, honesty, integrity, human sensitivity and a sense of belongingness to the banks, the country and the society as a whole.

The banks should have a sound promotion policy which will ensure the rise of honest and talented people in the system. Banking, health and education sectors should always have merit as a criteria in career progress. These three sectors deal with human life, livelihood and empowerment.

Regionalism is the biggest killer of talents in some banks. In some public sector banks it is so blind that it ruthlessly destroys quality human resources to promote the language groups. It is the responsibility of the bank management to weed out the regional bias for better banking performance.

Bank inspectors who make the general health check up of banks, internal auditors and staff in loan desks should not continue in the same desk for more than five years as there is every possibility of them developing their vested interests. Banks should rotate the staff in sensitive desks without compromise.

Relationship with the boss scores over performance and value for time in some organisations. Many silent and honest workers with knowledge, skill and commitment are dumped when personal relationships with bosses let the mediocre to rise.

The new MBA oath taken by graduates of Harvard Business School reads “the goal of a business manager is to serve the greatergood and no advancing of own narrow ambition at the expense of others.”

Unless banks dismantle the relationship-based performance analysis, it can never address its losses.

Since public sector banks are for doing business as well as social good, no incentive should be given to bank chiefs for achieving any target. Incentives for achieving targets works like an ulcer in bank as bankers try to achieve target by overlooking quality. All kinds of targets should be demand-driven as supply-driven approach creates credit delinquencies.

This is the time to set self-goals and self-incentivise. Post retirement plum posts should be scrapped as it always lets bankers make compromises.

Banks have to develop expertise in assessing the actual credit potential of different sectors. The main reason for NPA growth is overflow of credit to some sectors like aviation, realty, infrastructure, power, steel, realty, coal and education etc due to poor assessment and external pressure. Here, the assessment of credit potential should be distributed among top officials who will be solely responsible for any overflow of credit.

Senior and experienced social sector bankers should shift their base from metro cities to backward states and districts to make use of their rich experience. Senior development bankers with rich foreign experience should be posted in North Eastern states and in tribal belts to transfer their rich experience to ground level for better result.

Honest and transparent banking can dissolve the Maoist influence, prevent religions conversions and activate the entrepreneurship cycles. Indian public sector banks with their wide network of branches can create millions of jobs.

(The writer is a freelance commentator)