NPA in banks - Causes and solutions

Dear friends,

Now-a-days, we all are facing a crucial issue of NPA of all public sector banks. Many large banks including SBI, PNB have reported huge NPA of their industrial clients. Govt has been making efforts for solving the issue, changing laws, issuing directives etc, but it seems that everybody is trying hard to protect himself only. We are actually trying to balance between our rights, powers and duties. We want to protect our rights and blame others for their duties only.

However since a business house is a cluster of various interrelated economic activities, only a well thought comprehensive plan or policy can achieve the goal.

In my opinion with experience of accounts in the manufacturing industry following steps should be taken by the banks, govt, RBI, CAG and professional bodies to make a comprehensive policy.

Separate Internal Audit Department should be created in all banks and approved by RBI. Internal Audit Policy & Reports must be designed by RBI only. The Internal Audit Team of one region should conduct audit of branches of other region on regular basis. Visits of Borrowers premises by bank auditors (internal) should be once every year on random selection basis. Physical Stock & Book Debts should be checked with Stock n Book Debt Statement submitted to branch.

External Auditors of all Banks must be appointed by the CAG only in consultation with RBI. Instead of Audit Firms, Individual CAs should be selected by RBI & CAG for audit of individual branches across the country.

Moreover, all the borrowers availing credit limits or having current account transactions over predetermined threshold limits must submit Audited Balance Sheet/Income Tax Return/Net Worth Certificate to the bank. These certificates should also be verified by bank staff on random selection basis.

If the aforesaid suggestions are implemented fully, some may infer that banks will become partners in management of business entities and will rather put hurdles in efficient management of enterprise. However listed companies are required to appoint bank nominees as directors who actually never worked for enterprise and were even exempted from liabilities of directors by govt.

However banks are really a large stake holder in the business enterprises and invest public money (depositors) in business without their (depositors) knowledge or consent, they owe a responsibility of protecting their interests. Therefore by appointing qualified auditors, credit rating agency, asset valuers on permanent job will improve the situation rather than asking for professional reports and valuations from the borrowers and dumping the reports unless situation goes out of control.

Your view are cordially solicited please.