A Study on Reduction of Non-Performing Assets in Commercial Banks ( A Case Study of Alwar and Lakhimpur District)
Submitted to the JJT University for Registration of Ph.D Degree
Mridul Dharwal M.B.A., M.A.(Economics), UGC- NET, SLET(RPSC). Assistant Professor, School of Business Studies Sharda University, Greater Noida
For a long time, India tried to follow socialism treating all businessmen as crooks and looking at entrepreneurs with suspicion. All talk of liberalization and economic reforms has not changed the mindset of Indian bankers. The legacy of the British raj has survived and flourished in the form of India's gigantic cancerous bureaucracy. The tentacles of his cancer have spread to almost all fields in India including banking. Indian banks and financial institutions are crying about their large Non-performing Assets and are blaming the entrepreneurs, businessmen, Government, judicial system, courts etc. for the mess that has been created primarily by them.
Any lending involves the following three stages where discretion needs to be exercised: (a) evaluation and assessment of the proposal (b) continuing support during the currency of the loan by additional loan or by non-fund based activities and (c) Exit decision and modality. Indian Banks and Fl's exhibit extremes of behaviour at each of the above stages. A rule-based approach precludes reasonable application of mind. Evaluation of project idea and the management is something the most Indian banks and Fl's are least equipped for. This leads to the banker acting too liberal on all projects that are related to the flavor-of-the-month as well as to insisting on collaterals from everyone without taking into consideration any other competencies of the entrepreneur. For example if wind is blowing in favour of software, all projects involving software will be supported. On the other hand if food is not being favored, a genuinely good proposal in foods will be rejected by all banks. This naturally encourages crooks to keep smelling for the flavor-of-the-month. As soon as they smell it out, the next step is to get a ready mix 'bankable' project report from a con-man (also called consultant). Banks and Fl's are too willing to finance against such reports to shady businessmen who may also sometimes grease their palms instead of looking for genuine project ideas backed by competent men of integrity. Herd mentality of the bankers and Fl's creates excess capacity in any industry that they choose to finance thereby laying the seeds of sickness of the industry. Coupled with the in competency of the entrepreneurs and the shady intentions with which the projects were set up, the sickness spreads like wild fire.
After a loan has been disbursed, it is an accepted norm that the bank and Fl's have a duty to keep smelling for and to act promptly on key signals that indicate the health of the recipient of the loan. Rule-bound bankers in India do collect to even advise their clients to cook up their accounts to either satisfy the Banker's Health Code requirements or to get their unit classified as sick under the relevant laws. This...