We all know that NPAs of banks are on ever rising mode and no matter how hard government tries, it cannot do much in order to clear the balance sheet of banks. Every business have certain inherent risks, fortunately or unfortunately for banks inherent risk is non recovery of loans given and inherent risks cannot be eliminated they can only be reduced to an acceptably low level. Banks can take following steps to keep the NPAs at an acceptably low level:
1. Strict credit appraisal: Banks should stop giving money to unworthy people. Strict credit monitoring is the need of hour. Nexus between the employees of bank and borrower is the real reason behind bad loan. You cannot give loan to a person who have no means to repay it. Crying foul afterwards is not an acceptable excuse. Wake up bankers before it becomes too late.
2. Proper follow up after disbursal: Dear banks, it's somebody else's money, after giving it, make sure it comes back. Proper follow up should be done, collecting certified stock statements and debtors statements are not enough. There are many certified accountants who are ready to sign such certificates without even verifying single paper. An alternative loan monitoring system should be developed. Send an external audit party independent of borrower to check stock and debtors on regular intervals.
3. Sell NPAs: Selling NPAs is an another measure which can be adopted by banks. Sell NPAs to securitization companies on cash basis, you may get less money by doing it but remember something is better than nothing.
4. One time settlement: Keeping the public interest in mind, banks should provide an one time settlement scheme, it can save banks both time and money. Unnecessary litigations can also be avoided. Recovery camps should be organized on regular basis.
5. Write off NPAs: This is an actual loss and should be the last resort, but it will improve the bank's balance sheet. Banks can also claim tax benefits for the same.