This refers to the editorial “Worsening asset quality” (November 12). The present mess in large public sector banks (PSBs) is of their own making. In the wake of the global financial crisis, the Reserve Bank of India (RBI) took a lenient view on non-performing asset (NPA) provisioning, and introduced revised restructuring norms to help affected borrowers. Banks took these as a bonanza. Despite large PSBs making profits, they were unwilling to provide for NPAs. Under the new restructuring norms, they competed with each other to cover as many bad accounts as possible. They posted greater profits, albeit through window-dressing. State Bank of India led the pack, and the other banks followed. Those accounts that could not be revived under any circumstance were restructured brazenly.
The finance ministry’s novel idea of auditor-appointment, which came in force thereafter, helped PSBs further. The auditors were appointed on the basis of “contacts”, at the mercy of bank management. A refusal to acknowledge these on time is the main problem.
C V Sajan New Delhi
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