Letters: The bad assets game

This refers to the editorial "Banking blues remain" (November 19). The efforts of the State Bank of India top management to cut costs and shore up non-interest income are commendable. But the fact that the bank has also managed bad assets to report impressive performance for the just concluded quarter is not good news. Yes, bad assets can be managed either way. Higher or lower provisions in the profit and loss account are at the total discretion of the top management. Unfortunately, the bank auditors are too willing to comply and join the celebrations. In fact, the entire asset (even standard assets) side of the bank's balance sheet can be managed, thanks to window-dressing practices that have been followed in the Indian banking sector for the last 30 years or so.

The curious factor is that the asset side also allows you to showcase the impressive liabilities side. The banking regulator is clearly aware of this phenomenon but is satisfied by sending out a circular warning against such practices every year. How much of the bad assets have been managed through window-dressing and how much has been really managed is not known to anybody other than a few people at the top. The auditors would also close their eyes and pretend as if nothing happened. But the State Bank of India alone cannot be blamed for this practice. The entire banking industry (including the private sector players) has mastered this art.

Correlate the financial results to the date of the chief executive officer taking over or retiring, and one comes across the huge difference in the growth/slide of assets/liabilities as also the bottom-line in a bank's books.

K V Rao Bengaluru

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