Last year (2013) was challenging for banks. They were criticised throughout the year for their high non-performing assets (NPAs). The RBI has also said it in its Financial Stability Report (FSR) that NPAs are a cause for concern. What do you have to say?
NPAs are not a cause for concern, but they are certainly a challenge. NPAs, when combined with restructuring, are a problem. Banks have handled such high NPAs earlier also. The speed of increase in NPAs is a cause for concern. If the NPA situation is not tackled, it can go out of hand.
In that case, do you believe that there is a need to change the process of restructuring?
The way banks are doing restructuring is not proper. Restructuring is a legitimate instrument.
Banks should not do restructuring to hide NPAs. Restructuring should happen across the board in all categories. The restructuring process does need modification. Banks should classify all restructured accounts as NPAs. All NPA accounts should also be considered for restructuring. If all things are done properly, then banks will be fair in doing restructuring.
One common complain is that banks largely give preference to big customers whereas small customers are neglected.
There is a trend of giving differential treatment to the underprivileged in Indian society We are trying to incentivise banks to give same preference to all customers. Business can only grow when small customers are kept alive. Banks in their own interest should focus on small borrowers. Commerce for the poor is more viable than commerce for the rich.
There are allegations that banks are in a nexus with borrowers. Even finance minister P Chidambaram seems to have implied that such a nexus exists.
I don’t think there is a nexus between banks and borrowers. Banks do share some cosy relationships with some promoters. Banks do give preferential treatment to some big corporates. There should be continuous monitoring of small accounts. Restructuring and other benefits should also reach small borrowers.
Banks have written off loans worth nearly Rs 1 lakh crore. Are banks using this instrument in an improper way?
We always blame banks for higher NPAs. Corporates not repaying loans should also be blamed for NPAs. Giving loan in a risky business and at times it goes wrong. Banks have to cover the risk while giving loans. Write-off is not a wrong method. Write-off can been done only after the proper recovery process.
Well, if promoters don’t pay, banks don’t have any option other than write-off. Technical write-off should be totally stopped. There should be some yardstick for banks to do write-off.
Public sector banks have higher NPAs than their private peers. Where is the problem? It seems NPA these days could actually mean ‘non-performing administration’.
Management, governance and administration of private banks are better than public sector banks. Issues in public sector (PSU) banks are more due to structural inadequacy. Structural issues in PSU banks are of government ownership, public shareholding. Structural issues in PSU banks are also due to regulatory forbearance. The RBI doesn’t have the same law for private and PSU banks In the private sector, there is a separate post of CEO and chairman. PSU banks need structural changes in the whole system. We have spoken about changes in PSU banks in the FSDC Sub-committee. Corporate governance and management need total change in PSU banks. Many management principles are not the same as for private banks. The RBI is working on the issue of PSU banks and we will try to change it.
It seems banks do financial inclusion only because they are mandated to do that.
If banks do financial inclusion as a target, it can never happen. This is a wrong approach for banks for doing financial inclusion. It (financial inclusion) is a legitimate and viable business. Banks can make higher profits if they do financial inclusion. Banks alone cannot do financial inclusion for the whole country. State governments, the central government, non-government organisations and regulators should also help in it.
You have always advocated banks to cut cost of transactions for the customer. Do you believe there is still some scope?
Certainly there is a lot of scope for banks to cut cost for small customers. Banks have scope to cut cost in all the areas for small customers. Transaction cost in other sectors has come down a lot comparatively. Till cost reduction is not done, inclusive banking is not viable. Banks need higher competition to cut cost. New bank licences will bring in a lot of competition and innovation.
Recently, a lot has been said about ATM security. But banks are also talking about increasing charges.
ATM security is more of a law-and-order problem. Banks secure ATM more for the own machines and money. Banks will increase charges if the cost is increased for ATMs. We should not expect banks to do security of individuals from robbery and theft. Security of banks is a very debatable topic. State governments should work on law and order for security. If banks are forced (to take responsibility for security), then they will likely consider closing some ATMs.