|Focus on PARA, not NPAs|
|Wednesday, 22 February 2017 05:31|
PAC must look at NPA resolution, not what caused them
Given its wide mandate, the Public Accounts Committee (PAC) is well within its rights to ask heads of PSU banks to give it details of their NPAs and an explanation for why these have ballooned in the manner they have and, wherever possible, details of whether there was any siphoning off of funds as has been alleged in the case of the Kingfisher loan. According to a report in The Economic Times, the PAC has asked Indian Bank and Indian Overseas Bank for an explanation first; presumably, other banks will be called over a period of time. Since it is obvious banks will have conducted their due diligence—for what it is worth—before sanctioning the loans, it is not clear what the PAC hopes to achieve; indeed, since loans go bad for a variety of reasons, such questioning may reinforce the fears of bankers and cripple further loan sanctions. It is, of course, possible the PAC has its own suspicions and, in that case, asking banks to get forensic audits of some accounts may not be out of order—though this was something that was better done by either RBI or the Banks Board Bureau. Since banks will point out that, more than the process of giving the loans, what was critical was the legal hurdles in recovering their money —in developed countries, once a loan goes bad, seizing the assets takes very little time—this is a good thing as educating MPs is a critical if better policies are to be legislated.
The PAC process, of course, would be far more helpful if it focused on resolving NPAs—the Economic Survey had talked of the need for a Public Sector Asset Rehabilitation Agency (PARA)—than on now trying to go over well-known grounds to examine what caused them. Since the bulk of bad loans are held by the big investors of the past, it is critical that these be resolved at the earliest—if the banks need to create provisions for the bad loans, the companies need significant write-downs if they are to be able to carry on business. The process, however, will be politically fraught with risk since, if loans are to be written down for existing promoters, or even new ones, all manner of corruption charges will be levelled. If the PAC is able to understand the importance of the NPA pile-up—not scoring political points on whether the UPA or the NDA caused the problem—and the contours of a possible solution, it will be time well spent. If not, it will produce another report which will be used to settle political scores.