RBI GOVERNOR RAGHURAM RAJAN has been pushing Indian Banks to deal with their non performing assets (NPAs) effectively and to clean up their balance sheets by March 2017. As of March 2015, the gross NPAs of scheduled banks have stood at INR 30,200,000,000 which amounted to 4.6% of advances in absolute terms. The figure has deteriorated and private estimates put the numbers between 17% to 25% of advances.  Close on the heels of  Raghuram Rajan’s putsch, the Niti Aayog is also making a pitch for “taking the tumour of NPAs out of the banking system.”  The same old remedies of forming asset reconstruction companies for corporate debt restructuring are being mooted and the poor Indian tax payer keeps wondering whether he has any escape at all from shouldering the proposed write off of NPAs.

IN THE RECENTLY DELIVERED CD DESHMUKH LECTURE at New Delhi, Raghuram Rajan also spoke of bringing in more talent in PSU Banks for better management.  Of course, there is still a gap in salaries between professionals working in PSU banks and in the pay packets of private and foreign banks.  Indeed a substantial majority of Engineer-MBAs today are simply number crunching at banks doing project appraisals and debt rescheduling.  The problem of NPAs cannot however be easily solved by improvement in salary and perks.  As Raghuram Rajan repeatedly pleads, Indian corporates (and Banks) have to transit from the “culture of impunity” to the “culture of accountabilty”.

IN THE ABOVE CONTEXT, INDIAN BANKS need to pay attention to what Dr Atul Gawande has done vis a vis health care. Dr Gawande, is arguably, one of the world leaders in a rigorous adherence to checklists for reducing mortality in hospitals and improving patient care.  His work The Checklist Manifesto is a must read and indeed its philosophy applies to any activity.  Banks of course are not without checklists.  Indeed there is an entire list of well-developed checklists that could be conveniently used by the banking industry but in terms of the approach and compliance Banks do need to take some lessons from Dr Gawande’s work. Checklists for banks are in place right from the pre-sanction of loans followed by checklists related to pre-commitment, pre-disbursement and post disbursement of loans.  The process actually continues with the regular preparation of performance monitoring reports until the loan is fully repaid.

EACH OF THE ABOVE CHECKLISTS have action points to be initiated on reaching the given milestones during the life of a loan.  The checklists are also embedded with early warning signals for initiating remedial action so that the situation is well within the control of the Bank that has advanced the loan and indeed before the loan goes bad.  If the banking system has come to such a sorry pass it is either because bank managements have either simply chosen to ignore the early warning signals that the checklists and performance monitoring reports have intermittently thrown up or simply overlooked compliance issues.  Or quite bluntly, bank managements have simply caved in to political pressure to continue helping rank defaulters. If the above apathy persists no amount of tinkering with various corporate debt restructuring measures will yield any desirable results.  The crying need of banks is to emulate the Gawande approach for rigorous adherence to the already well established checklists so that tax payers are spared of shouldering the burden of huge losses that the loan write offs would entail.

UNSPARING ADHERENCE TO CHECKLISTS, strict performance monitoring of loans, greater respect for internal auditors and in-house legal and compliance professionals is the need of the hour. No jugaads will work and lastly, the time is probably overdue for the public naming and shaming of all wilful defaulters and rent seekers. And sooner the unwritten, adversarial relationship that exists between Corporate Banking and Legal and Compliance departments within  banks ends, the better it would be for Indian banking.




  1. pvmaiya says:

    Well stated. For over 10 years since 1981, banks’ balance sheet were fudged at the instance of Congress party in power. Then Basel Regulations came in and by 1994 true state of affairs could not be hidden .The RBI introduced all the concepts of income recognition, NPAs, gradation of deterioration in asset qualityetc. Over the next 5/6 years the banks disclosed reasonably accurate financials. Soon the politicians made re-entry and we now see the results.The positions of Bank CMDs and EDs attracted lobbies unheard of till then. .So now one more surgery is needed. It may help but the fact is banks are far from professionalism and competence. Anyway if the political class and the CMDs learn to wash their hands as recommended by Atul Gawande, infection of assets can be reduced.


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