Banking is mainly a commercial activity with an aim at an overall economic as well as socio-economic development of the nation. Banks are required to function within set norms and procedures. Deviations from the defined track by anyone under any circumstance is bound to derail the whole system and result in the losses both financial as well as reputational. A financial loss can be covered by provisions and insurance but the reputational loss is difficult to be covered as it spreads like an epidemic. Any mishandling of any affair of the bank especially the adequate supervision, governance, and the duly set policies and procedures are sure to result in the frauds and increase in NPA’s.
There were times when default and frauds were not so common and the society was looking at this with disdain. The things seem to have taken a complete U-turn in the present times. The recent serious fraud and NPA cases show that very reputed persons and business houses have entered into these disgraceful games without any visible sign of regret or shame on their faces. Society seems to have acknowledged such disgraceful acts as normal and a usual thing. This is a dangerous trend for society as a whole.
In many cases of big NPA’s and big frauds, the big bosses in the banks have been found hand and glove with these defaulters and the fraudsters. The lack of proper corporate governance, lack of adequate supervisions, DEFECTS IN BANK AUDITS AND INSPECTIONS and to some extent connivance with the perpetrators of frauds are the main contributors to the happening of these serious things in the banks.
The persons at the top of decision making in the financial institutions are appointed under the political influence, so they have political linkages and leanings. Any politics in the financial system is bound to spoil it and the results are before all of us. The financial institutions need to be kept autonomous in the real sense and the regulator needs to be given more teeth and authority in order to effectively regulate the economic system in the country. No doubt that the reins of the economy have to be in the hands of the government but it is always advisable to use the reins for guiding the horse to change the desired directions (BANKS; LEVEL FINANCING). If we constantly keep on pulling the reins, it will retard the speed of the running horse and prevent him from gaining the desired momentum in his speed. The banking system, therefore, needs to be allowed functional autonomy in the real sense, however within the overall control and guidance of the regulator of the economy.
For the past few decades, there has developed a trend and a very unhealthy practice of outnumbering the competitors in allowing loans to different segments of the society in the name of upliftment and development. In such a mad race for scoring more numbers, the basic principles of lending are compromised resulting in the creation of mass indebtedness as well as unnecessary NPA’s Bank’s NPAs. Causes and Remedies. Such loans seem to serve the political class in securing more votes than any improvement in the overall development of the particular sector. Agriculture and the allied sector is one such example where loans are given under pressure from the political class and where the basic parameters of loaning are compromised with the result that the poor farmers fail to repay. The debt burden on the poor goes on increasing as he fails to repay because of the failure of his crop either due to floods, or the draught, or poor seed quality, or unavailability proper pesticides and fertilisers in time. Farmer suffers on account of the failure of the crop as well as for the good production. In the absence of a suitable storing capacity/facility, a properly regulated market, and the higher input cost as compared to the cost of yield he is left with no other alternative than to shun his age-old agricultural occupation and migrates to some other activity AGRICULTURE: A SERIOUS PRIORITY. in order to make his both ends meet. And then comes another trend of mass loan waivers at the very instance of various political parties who have not the welfare of farmers in sight but the vote for their own welfare. This trend too is very serious with long-lasting implications for the economy as a whole. Money for the loan waivers for anyone doesn’t go from the pocket of any party but from the public exchequer. The state should, therefore, create proper infrastructure for the agriculture sector such as availability of seed, fertiliser and all inputs at suitable cost, irrigation facilities, the creation of flood channels for taming the floods, elimination of middlemen from the market by introducing a properly regulated market in order to ensure that the farmer/producer realises the minimum support price to cover all input cost with a suitable profit. The farmer needs to be empowered thus enabling him to stand on his own legs rather than remaining dependant on a class which keeps him exploiting forever.
The farmers are a very hardworking, honest, simple, and self-respecting class of people. They don’t want any free favors. Even in the very adverse circumstances, they have kept the food bowl of the country full in order to feed its subjects. All they need is proper support and no undue favors or exploitations.
Loan waivers for one section induce an allurement for other sections for similar favors and this unending cycle if set in motion is a very dangerous trend for the banks and the economy as a whole. The existence of such trends in the banking system is eroding the trust of the public in these institutions of economic development. DWINDLING TRUST IN BANKS- 20 Steps/ Remedial measures Suggested Banks, therefore, need to strengthen their systems and procedures, supervisions and controls, recovery management Management of NPAs -Some recovery techniques. as well as NPA management systems.