DNA Money Edit: RBI measures not enough to reduce bad loans at banks

Reserve Bank of India has begun cracking the whip on banks who are struggling to come to terms with their burgeoning bad debt. Earlier this week on May 9 RBI put Mumbai-based IDBI bank on the watch list for its high levels of bad debt and slow recovery process.

Moody's investor service told Bloomberg that 17 other banks could go the IDBI way.

But are these changes enough? With constant shifting of portfolios, transfers and new management every three years, no bank Board feels responsible to improve the ground situation. Most of the banks are headed by bankers who spend most of their long careers in other banks, resulting in poor understanding of the banks they come to lead just prior to their retirement. Promotion to the chairman level is often three years, and very rarely five years prior to the retirement.

In a concerted action, the government also changed the heads of two large banks Punjab National Bank and the Bank of India. Melwyn Rego, former chairman and managing director of Bank of India faced a peculiar situation. He is to head Syndicate Bank where the incumbent CEO Arun Shrivastava will retire only in June. Executive director of Canara Bank Dinabandhu Mohapatra has already taken charge as MD and CEO of Bank of India.

The government is also snatching away the independence of the bank Boards by changing their chiefs without internal discussions. This may result in bank managements living in constant fear which is already resulting in them failing to take action against the powerful defaulters.