Govt, judiciary too responsible for India's NPA crisis: SBI's Rajnish Kumar

Commenting on the Insolvency and Bankruptcy Code and the Reserve Bank of India's February 12 circular on speedier recovery of bad loans, Rajnish Kumar said these two rules were game-changers.

The government, industry and the judiciary too played a role in the buildup of India’s non-perfoming assets (NPA), Rajnish Kumar, Chairman, State Bank of India, said on Monday.

“I would say everybody is responsible, be it the bankers, be it the industry or borrowers, be it the government, and without inviting contempt of the court, even the judiciary has played a role in this situation ," he said, addressing a banking conference.

He said NPAs for public sector banks were higher due to government-sponsored schemes and targeted lending. 

Commenting on the Insolvency and Bankruptcy Code and the Reserve Bank of India’s February 12 circular on speedier recovery of bad loans, Kumar said these two rules were game-changers. 

“These laws will bring discipline in credit markets which was lacking prior,” he said, adding every capitalist economy needed an insolvency court.

He said the relationship between bankers and the industry was built on trust. “In several cases there has been a serious breach of that trust, maybe the verification process was missing.” 

Delayed response by bankers was also a factor in aggravated NPAs, he said. 

“Consortium banking increases risk, due to delayed decision. One way is to limit size of consortium and not have too many banks. Second, the consortium should be comprised of like-minded banks with the same risk appetite,” Kumar said. 

He said NPAs reached their peak in March 2018 and were seeing a decline.  “Most sectors are seeing a turnaround with government’s effort. One sector which is still under stress and hope is less is power. There is a need to fix power sector.”