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Letters: Asset liabilities

Business Standard  |  New Delhi 

This refers to the edit “Worsening asset quality” (November 12). The deterioration in the quality of assets may be partly due to the downtrend in the economy, but the same cannot be taken as a matter of consolation for banks and stakeholders of banks. The seeds of non-performing assets (NPAs) are sown during the boom period when banks expand credit, throwing caution to the winds all appraisal standards. Borrowers take full advantage of this liberalised approach of the banks. The only way to curb formation of NPAs in banks is to discipline the borrowers by strict appraisal standards and close monitoring of loan accounts. They need to be rated based on their conduct of loan accounts. Banks should levy a small fine when their performance deteriorates. As it is, the cost of maintaining bad accounts in banks’ books is debited to the profit and loss account, which is at the cost of depositors’ interest and other stakeholders’ share of dividend.

T V Gopalakrishnan Mumbai

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First Published: Wed, November 14 2012. 00:06 IST