Banks must vigorously recover bad loans
News relating to non-performing bank advances was topical during the last fortnight.
The official contention is that the loans loss provision covers 80 per cent of the non-performing advances. Banks cannot afford to siphon out the earnings to cushion the losses arising out of its deviation from banking norms. No one seems to worry about recovering the non- performing advances. They are interested in providing and drying up the earnings which could be put to very good alternative uses. All those loans could ultimately end up as: “Written Off” loans. It is the dead-end.
How many members of bank staff and those decision makers are aware that these are conventional accounting safeguards and stipulations and nobody should take refuge behind such legal accounting safeguards to avoid continuous and concentrated efforts to recover those unpaid amounts? As far as the borrower and the bank are concerned those advances are still due to the bank. It is the duty of the bank to pursue and recover every cent however highly placed the defaulters are, or however much the genesis of the non-performing loans could be attributed to the irresponsible decisions of the bankers to say the least. Involvement could be deeper than it seems.
Banks accept deposits and lend them to their customers. Demand deposits are interest free. Time deposits yield very low rate of interest to the depositors, compared to the lending rate, on the one hand and the eroding inflationary impact on the other. The spread between the two rates is the lifeblood of the banks that continue to concentrate on deposit based income. A sophisticated modern bank relies more on fee based income. This source has come to play a more vital role. It presupposes the existence of competent, knowledgeable professionals in a variety of disciplines in the bank.
Suffice it to say that banks having a substantial volume of non-performing advances have to pull themselves up by their bootstraps and buckle down to concentrate on the recovery of those loans instead of resorting to escapist tactics like transferring such advances to a different institution (not factoring) or quibbling as to whether the names of defaulters can be published or not. There is one school of thought that contends that defaulters cannot be continued to be categorized as customers (or clients) for they are undischarged debtors. Moral suasion in our context is the least effective weapon at the disposal of the bankers’ banker.
Whatever it is, there is no alternative for the lending banks but to carry out vigorous recovery actions. May be the defaulters may threaten exposure of those who were taken care of. At least let the defaulters pay what they utilized less the consideration for illegal gratification. Surely such amounts can’t be as much as the amounts lent. The personal responsibility of the decision makers too enters the picture. They cannot pass the buck to the political firmament.
Recovery alone is the golden key at the disposal of the banks and not by expanding the capital base or by state infusion.
R. Suntharalingam
(Sent by email)