Don't overplay NPA issue to extent of debilitating lending:Rai

Banks Board Bureau chairman Vinod Rai today said the stressed assets problem should not always be seen as an "alarmist situation" as it may make lenders more risk-averse towards fresh lending or settling old cases.
"The banking sector has seen a considerable stress in recent years. We, however, should not allow the cacophony of uninformed voices to debilitate the decision-making capability of bank executives," Rai said at the 12th convocation of the RBI-run National Institute of Bank Management here today.
"Projects do have time and cost over-runs. Quite often the problems are creations of the global economy. Nevertheless, these need not be magnified to create an alarmist situation leading to a backlash wherein banks become risk-averse whether to lend afresh or settle old cases."

He said in the past, the banking system has faced problems but they have emerged stronger.
The former Comptroller and Auditor General said not all loan defaults are willful and not all lending activities even if it is to salvage some stressed accounts can be branded as corrupt practice or criminal misconduct.
Calling for addressing the stressed assets issue with urgency and diligence, he said, "We need not debate ad infinitum the escapades of one or two industrialists. Unfortunately, the legal system does not permit easy and rapid resolution of stressed assets of banks. Nevertheless, we cannot allow normal loan advancing activity to come to a standstill based on the experience of a few cases of mismanagement."

Within the framework of the existing laws, tenacious steps have to be taken to ensure that the stressed assets issue is resolved and their value is not allowed to depreciate.

He said loan defaults do occur in the banking industry and they may occur for a variety of reasons which are beyond the control of the borrower.
Rai further said that these defaults merely amount to a breach of contract, and hence, are not necessarily criminal in nature. It would attract criminal prosecution only if fraudulent or dishonest intentions are established, he added.
"Therefore, defaults occurring on account of a downturn in the economy or adverse external factors cannot be construed as cheating or borrowing with a mala fide intent," Rai said.

"In fact, the attempt will always be to defend
transparent and well-considered decisions taken in good faith which went awry for conditions beyond the control of the lender or the borrower," he said.
But Rai was quick to add that in cases where prudence was ignored, the attention of vigilance agencies would be attracted.
"The public money should not be allowed to be cornered by vested interests for their insidious designs while the small borrower is hounded and driven to such extreme steps as suicides," he said.
Rai said the banks, public sector banks in particular, have played a stellar role in energising economic growth.

"We need to accelerate lending activity, taking care to ensure that proposals are professionally appraised and transparently analysed. If these basic principles are ensured, we will succeed in creating a new era of reform," he said.
On the Banks Board Bureau, he said it will attempt to provide the boards of public sector banks a sense of purpose and direction by adequately infusing professionalism and domain expertise.
Calling for compensation packages for public sector banking executives in the context of banking activity becoming very complex and competitive. He also called up on bankers to transform the present challenges into opportunities by adopting innovative technologies.

"An adequate reward structure around Esops, performance- linked incentives and other benefits can surely be designed to attract the best talent to the public sector and the Banks Board Bureau will apply itself on this issue to ensure a level playing field for the top echelons in the public sector," he concluded.