Bad loans: KC Chakrabarty blames poor credit appraisal by PSBs

Chakrabarty said in the last three years, state-run banks alone reported over Rs 16,690 
crore in frauds (Reuters)

PTI Mumbai 17 Nov 2013

KC Chakrabarty said state-run banks report over 86 per cent of the non-performing assets (NPAs).

Reserve Bank of India (RBI) deputy governor KC Chakrabarty today attributed the high incidence of stress on the books of public sector banks (PSBs) to poor credit appraisal and management and asked them to be economical with recasts, if not end the system of restructuring.

Chakrabarty, who carries a reputation for airing his frank views, said the banks were "complacent" during the good times since 2006-07 in their credit management process and wrongly blame the global to financial meltdown for high NPAs.

Using data from the last 20 years on the asset quality front, Chakrabarty said state-run banks, which control 75 per cent of the system, report over 86 per cent of the non- performing assets.

In the last 13 years since 2001, the banks have added over Rs 6 lakh crore in NPAs and have shown over Rs 4 lakh crore in reduction, he said, adding a bulk of the reduction is driven by the write-offs (Rs 1 lakh crore) than the actual recoveries.

Asking banks to be quick in decision-making, Chakrabarty, who himself was a banker before coming to the RBI, said the problems with the accounts start with the appraisal process itself as loans are granted without proper diligence and NPA accounts of the past are also getting credit.

A majority of the write-offs involve big accounts, he said, underscoring the need to hold the senior management which clears the big loan proposals, accountable for its decisions.

It is, therefore, necessary for bankers to be very diligent in the loan appraisal process, the deputy governor said, adding that in many cases undeserving cases, which have been NPAs in the past, have also received loans from banks.

"Wrong appraisal is leading to diversions, leading to over- leverage, leading to fraud, leading to NPAs...they are all inter-related," Chakrabarty said, asking the banks to rely more on available credit information.

Chakrabarty said in the last three years, state-run banks alone reported over Rs 16,690 crore in frauds and underscored the need for making senior management, who clear large loan proposals, more accountable.

Chakrabarty also lashed out against the practice of restructuring which is being used as a tool