Are Indian banks at brink of crisis?

Thu, 27 Nov Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

An efficient and healthy banking system is the backbone for any economy. However, as far as India is concerned, the picture looks quite gloomy. The rising level of NPAs has plagued the Indian banking system. The problem of rising Non performing assets (NPAs) has become increasing acute for the Indian banks, and this more particularly seen in the nationalized banks. Poor credit appraisal, over leveraging, practice of giving fresh loans to pay off the old ones and leaving the mess for the successor are some of the practices that are prevalent in the Public banking system. And the result is hardly surprising - Public sector banks account for over 90% of Rs 2.40 lakh crore gross NPAs reported by Indian banking system (in 2013-14).

As reported by Business Standard, in order to clean up the bank's balance sheet, it is important to revamp the credit health of the Indian corporate. According to Moody's (Moody's Investor Service also know as MIS), asset quality deterioration among public sector banks is one of prime reasons for driving the negative outlook of India's banking sector. While we agree that it is important to restore the credit health of the Indian corporate, it is crucial for the banks to refine their processes before approving the loans.

Recently, even the RBI governor Raghuram Rajan has warned banks regarding the increasing bad debts on the back of rising defaults. As per Mr Rajan, the Indian banking is witnessing continuous erosion in the due-diligence required for sanctioning the loans, that too for big borrowers. And if we want banks to finance the enormous infrastructure needs and industrial growth that this country aims to attain, this issue needs to be addressed urgently.

The sharp deterioration in the asset quality of these banks has been evident for years. The bankers themselves are hardly willing to concede the poor quality lending. Recently, we came across an article, questioning on the SBI's MOU with Adani group. Unless such instances are brought under control, nothing can stop the rot in the Indian Banking system.

It is time that banks and policymakers give a serious thought regarding changing the ways Public sector banks operate. This is because no economy can be strong unless it enjoys the support of a strong and healthy banking system. We hope Governor Raghuram Rajan gets the bankers to wake up and smell the coffee!