2-waYs-to-coNtrOl-NPA

PONDEROUS SITUATION:

“Non-Performing Assets” or simply “bad loans” rose by 38% or by Rs. 35424 crore in the first 6 months of FY 14. On 31st March, 2013 NPA were Rs. 93,109 crore which rose to Rs. 1,28,553 crore as on 30th September, 2013. Source: A study by NPAsoucre.com. It keeps on swallowing the larger chunks of our budget. The UPA government allocated Rs.11,200 crore to Public Sector Banks in the interim budget but the current budget didn’t spelled out the amount ear marked for 2014-15

Banks are supposed to provide the lubricant that smoothen the commerce in our country. Act as a catalyst that converts the savings of ordinary citizens into capital that boosts economic growth. If banks do not fund infrastructure then who else will? If we look at the top 10 banks globally, three of them are Chinese banks. Why this is so – their economy grew and therefore there banks had to grow in order to provide credit.

SOLUTION: IMPLEMENT INNOVATIVE SCHEMES

SCHEME 1: BRING DIFFERENTIATED BANKS

World Bank ranks India at 134th place out of 189 countries in terms of ease of doing business. Even Pakistan and Yemen who are prone to American drone strikes are placed higher than India.We need to get our stalled projects cleared and bring it on track. Infrastructure development has been moving at snail’s pace. Raghuram Rajan proposed the concept of Differentiated Banks. Differentiated Banks are banks which will offer services only for a particular issue such as project financing and giving credit to under-serviced projects which needs a complete turnaround and help grow the local economy.

All innovation is potentially problematic, but with intelligent regulation it can be embraced. We have a capable and proven regulator in the form of Raghuram Rajan who can define the boundaries and lead us into innovative banking. Mobile banking presents one such opportunity to reach out to the remotest without necessarily investing huge amounts in infrastructure.

SCHEME 2: DEPLOY QUASI EQUITY SCHEME

RBI estimates that it will take `5 Lakh Crore to recapitalise PSB and get rid of the ever increasing NPA problem. This is needed over a period of 5 years. The solution for this is the innovative Quasi Equity Scheme.

Quasi equity financing is a kind of financing which involves a mix of both debt and equity. Therefore investors not only reap the benefits of interest on debts but also capital appreciation benefits.

Moreover the solution for NPA is strong economy like one of China. The moment our economy takes the aerial route, the stress will go down and profits would increase. Now this profit will automatically get converted into capital and reduce the capital requirement burden and help us to meet the Basel III requirements.

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