In the wake of the bad loan crisis of the public sector banks, the movement of the non-performing assets is paramount as it is crucial to the cost of credit. The downward movement of the assets from the standard to loss category is associated with rising credit costs due to the need for increased provisioning. The provision coverage ratio escalates in consonance with the slippages and ageing of the assets. Therefore, lenders have to remain proactive to control and arrest slippages of the assets to lower grades. In the case of the state-owned lenders, a lot of rejigging is essential to further improve the credit appraisal, particularly relating to risk assessment and cash flows of long-gestation projects. Professional asset-liability management is essential to control funding of the long-gestation projects.
Restricting fresh lending is not the remedy to avoid bad loans. Lending is one of the primary objectives of banks and must flow without break to ensure investment. The one-time restructuring of the stressed assets of the micro, small and medium enterprises segment is a big relief to the cash-crunched sector but the restructuring should not be for accommodating the borrower as was in many cases involving corporate loans. The restructuring must be scrupulous and purposeful to make the unit feasible and to protect the interest of the lender.
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 "Illustration by Binay Sinha")