Finally, action on bad loans: The Hindu
The Hindu, April 4, 2017


T T RamMohan


"Empowerment and oversight

There is clarity now that banks must be empowered to resolve the relatively small number of bad loans that account for a big chunk of the total in terms of value. In many cases, this would mean that banks write off a portion of the loans owed to them.
Managements at PSBs have been reluctant to do so for fear of inviting action from the Chief Vigilance Commissioner, the Comptroller and Auditor General, the Central Bureau of Investigation and other bodies. To stiffen their spine, we need to put in place an authority that will vet loan settlement proposals put up to it. The BBB has constituted a two-person oversight committee but reports suggest that the committee will not take a view on write-offs. This is not helpful at all.
We need a larger oversight committee or, as the Finance Ministry has proposed, multiple oversight committees to speedily vet loan write-offs. It makes sense to constitute a Loan Resolution Authority by an Act of Parliament.
This must be complemented with other measures. Banks must develop the discipline of keeping thorough minutes of the proceedings related to resolution of bad loans. The rationale for particular decisions along with the pros and cons must be properly articulated. This will serve to give bank management a measure of protection.
The government must provide adequate capital to the banks to cover write-offs and also facilitate fresh loan growth. It must end the delays in appointing Chairmen and Managing Directors of various PSBs. It must also revamp the boards of PSBs by bringing in independent directors of high quality.

The solutions should have been clear enough long back. It is the misplaced condemnation of PSBs that has held up resolution of the bad loan problem. Doing away with majority ownership of government, mergers, creation of a bad bank — all these are non-starters. The way forward is to empower management and strengthen governance at PSBs."


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