Decision making in distress
The general perception is that growth in NPA is weakening the performance of the banks and fixation of accountability is considered to be one of the corrective measures. As may be observed from the data published by RBI , https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1159 the credit growth has come down considerably.The growth in NPA is eventually a resultant factor, although there is an actual growth in NPA primarily due to default in iron and steel , power etc sectors. An evaluation of facts would reveal that closure of mines, with the objective of penalizing the aberrations , had an impact on the steel sector. Infrastructure sector also suffered as a consequence.
NPA is not a new phenomenon. Bankers are well aware of the defaults and extended supports to units in distress previously , because business in always subject to cyclical factors. Entrepreneurs with genuine difficulty received supports from banks and many of the present day performing units defaulted on many occasions but timely support from banks helped them to overcome the difficulty. RBI , from time to time, came out with guidance , such as hand-holding operations , so that the stability of the industry and the economy is not affected.
Identification of NPA through system , introduced in 2011-12 revealed large no of defaults and gradually banks started declaring more and more NPA. As a sequel to that there were pressure build up in the banking sector. Top management of the banks were under pressure to justify the reasons for the surge in NPA. They started looking for the accountability of the officials who had sanctioned the loans. Even the prudent decisions were questioned. Most of the front line executives responsible for taking decision, irrespective of their contribution , were subject to questioning. In this process the career prospects of majority of the performing executives/officers were affected.
The process resulted in an apprehension about accountability and general officers became afraid of decision making. Instead of looking into the prospect of sanctioning, they started looking for issues to avoid sanction at their discretion. The aforesaid statistics would reveal that the growth was only in structured products/consumer loans.The worst affected were the ailing units and entrepreneurs with genuine intensions were refused further support. The RBI guidelines for hand holding support etc were only in paper.
It is evident from above that it is not the interest rate , but the decision making , which is key to the business growth. In case we intend to strengthen the industry and the economy, the process is to be reversed. There should be a proper coordination between various departments to ensure that genuine decisions are not questioned and also denial of credit to genuine borrowers should also be questioned, even if it is a case of a defaulter borrower. The actions of the regulator should motivate executives/officers and induce them to take genuine decisions and come to the aid of units in distress.
