Evergreen Loans in Indian Banking Industry and the Art of Keeping NPA accounts under Standard category

by

Danendra Jain dkjain49709@gmail.com

If you are a banker or an official to regulate and monitor banks  or an auditing or inspecting official or an investor in bank shares ,you should  read the article which appeared recently in Reuters,

There is an established practice in almost all coooperative banks to keep the loan account EVERGREEN. To Illustrate and to make it more clear :   say a bank  disburse a loan of  Rs10000 to a farmer and the account become overdue after a year or two , the same bank sanction a loan of Rs20000 or Rs.30000 which enable farmer to repay first loan and avail only extra loan . In the same way bank use to sanction inflated loan year after year which keeps the account always standard.

During the course  of time , public sector banks have also learnt the art of keeping  the loan account evergreen. They have many tools in their clever brain to keep assets of bank always standard .

First and foremost is the  restructuring or rephasing of loan on flimsy ground and second to give additional loan to repay overdue loan.

If even after such self deceptive acts ,banks fail to keep the account in standard category they feed wrong information in CBS system so that such accounts may not be identified as NON performing asset in the exercise of identification of the system driven NPA.

Then they try to prevail upon team of auditors to help them in hiding bad assets from the balance sheet.

Next better  option is to sell the bad loan to ASSET RECONSTRUCTION COMPANY known as ARCs at discounted rate without caring for loss bank has to suffer and ultimately investor has to suffer by such unhealthy actions.

Lastly they have option to write off the loan or sacrifice major portion of overdue loan which again adversely affects the bottomline of the bank and is indirectly a cheating treatment with investors and employees whose earnings depend on health of bank.

Bankers seldom make efforts to strike at the root cause of rising volume of bad assets.And neither owners of banks have got time to nip in the bud.

Prudent bankers who are apt in art of keeping assets evergreen and standard , who know the art of managing auditors and concerned officials at various offices may only become ED or CMD of a bank .One who preach sermons to others but do not follow, one who can deliver good speech , who can manage boss and keep him happy by hook or by crook may only get the chance in promotion.

In our country none is bothered of real health of the system, real health of the organisation and real welfare of common men ,but everyone is busy is dressing and decorating the outer appearance attractive .And this is the root cause that an institution or a country all of a sudden lands in unmanageable crisis.

The link for a report that appeared in Reuters about the restructuring of loans of Hot el Leela :-

http://in.reuters.com/article/2012/06/20/banks-india-borrowers-restructuring-idINDEE85J03P20120620