Decision questioned
Growing NPA is a genuine concern for the country, for which the decision of the top management of the banks are being questioned. The process adopted by the banks in sanction of a proposal is risk complied and is approved by various tiers of the bank. Primarily the credit policy is approved by the Board of the banks , which conforms to the risk management guidelines. The boards consist of , apart from banks chairman/executive directors, nominee of RBI, Ministry, reputed professionals such as professors of IIM/Chartered Accountants , share holder director etc.
The proposal is originated from corporate branches, usually supported by due diligence report prepared by established corporate appraisers such as SBI cap, IDBI etc. The branch , after being satisfied with the contents, forward the proposal to sanctioning authorities/ controlling authorities. The proposal is examined by officials at various levels in the corporate office, and is placed before internal grids. After clearance of the internal committees the proposals are placed before board/management committees. The decisions are based on the information available to the officials of the bank.
While considering the proposal, based on the data available, it is ensured that the corporate would be be in a position to service the obligations. The proposals are scrutinized by the directors of the board/management committees and after all the clarifications are provided, sanction is accorded.
The volatility in the economy could never be predicted, although sensitivity is examined in the proposal. Largely the performance of the company depends upon the demand / supply/ government policy etc. Anti cyclical buffer is duly prescribed by the Basle committee to provide cushion to the banks against eventual defaults.
Let us examine the case of steel industry. As a sequel to the golden quadrangle there was a major boost to the infrastructure sector and the demand for steel , cement etc went up. Growing demand from china also contributed to the high demand for steel. Government policy to improve the infrastructure created an atmosphere of fast industrial growth. Meanwhile, large amount of misappropriation in mining sector attracted the attention of government , based on which committees were engaged to study the aberrations. The report identified severe weaknesses and as a restraint measure most of the mines were closed.
Steel manufacturers were affected by the decision , since they had to import iron ore/coal from different countries. importers from various countries shifted their purchase to other neighboring countries. The beginning of the present decade experienced slow down in government focus on infrastructural growth and combined effect was slow down in the manufacturing sector. Global slow down also reduced export from India. The eventual effect was on the entire economy.
The NPA growth is a manifestation of the set back in the manufacturing sector, for which putting a blame on the banks would only affect the decision making. The committees which decided the credit policies consisted of experience professionals from academicians from reputed Management institutes/ Finance professionals etc. reputed management institutes also imparted training to bank officials. The system failed to arrest the growth is not because the bank officials were less vigilant, but it is a combined failure. Putting the blame on the bank officials would adversely affect the decision making in banks. It would be prudent if the systems and procedures are reviewed and also analyse case by case as to how these units can be brought back to health. We appreciate the observation of governor, wherein he had asked not to arrest the lending by banks .http://indianexpress.com/article/business/banking-and-finance/ramnath-goenka-lecture-series-probe-illegality-but-dont-kill-lending-cautions-raghuram-rajan-rbi-banking-loans/ . The government officials should address the issue in a more pragmatic manner, so that bank officials do not refrain from lending. I will appreciate critical observations on my content so that innovative ideas emerge , which would strengthen the desicion making mechanism.
