Indian banks have been able to reduce the level of NPAs. Still they are in a dilemma whether to lend to corporates and follow up the recovery or shift their focus elsewhere. To this effect, they are moving towards safer side by increasing lending to housing sector, consumer durables etc. Although benefits of retail lending are many, corporate lending cannot be ignored. Banks should develop appropriate strategies in terms of risk management, lending practices etc., which will help to reduce NPAs in corporate credit.
In
Statistics, while discussing study of Probability, invariably
we mention tossing of an unbiased coin, which should
have two different sides. Similarly, in social life
we come across two types of people-good and bad which
is very difficult to divide unless thorough efforts
are made. The list can go on and on with the alternatives
of twos-tall and short, dark and fair, day and night,
soft and hard, etc. In business too, we divide the firms
into two categories-small or big, private or public
companies, carrying on domestic or international business
and those earning profits or incurring losses.
Lender
or creditor has no wherewithal to perfectly foresee
to ensure profit-making and repaying, despite the best
of appraisals and techniques or professional skills
to identify potential bad loans, or legal mechanism
to arrest tendency to default. Banks and Financial Institutions
(FIs) (including non banking financial companies) in
India would not have faced a situation like what they
are in today. Rough estimates indicate that more than
10% of their lending is entangled in litigations amounting
to blocking of sizeable deployable public funds, aggregating
over Rs. l,00,000 cr. It is certainly pulling down their
profitability and efficiency. Several studies were conducted
in the past by CII and FICCI, banks themselves, credit
rating agencies, trade unions of banks and others to
ascertain the quantum of overdue amounts and possible
ways of recovering the same.
Historically,
the legal remedy of filing money suits in civil courts
is resorted to by creditors only after exhausting all
types of persuasive methods to recover the dues. This
step leads to strained relationship between the lender
and borrower and the sole beneficiaries in the process
could be only their Lawyers! Because, such a deadlock
is not healthy for either the lenders or borrowers.
In the last three decades, credit discipline was at
the lowest in India for various reasonspartly from the
bankers' side for want of systematic appraisal, sanction,
documentation, timely disbursal and regular follow-up. |
