Mr Tamal Bandyopadhyay started the lecture by explaining how the noise over NPA has become louder after Raghuram Rajan initiated Asset Quality Review. In response to which the banks started to announce huge provisions to deal with NPAs which led to huge losses.
If the bad loans include restructured loans and written off loans along with NPA, the percentage will be much higher i.e., if it is 9% now it will increase to 20%. Most of the public sector banks have high NPA and they blame the environment and economic eco-system for their current condition. But, private banks which co-exist in the same ecosystem have low NPA between 1-2% except for ICICI which has 4%.Public sector banks are inefficient in relative to private sector banks because they are culturally different. The employee selection process is not transparent and the talent pool is poor. Public sector bankers have little incentive to remain honest as the pay is low. Hence the sector fails to attract better talent pool.
Talking about the impact of NPA on banks, Mr Bandyopadhyay said that it will affect the health and profitability of the banks. The deposit and loan growth have come down to the lowest because banks are scared to give loans, which adversely affects the investment.
Mr Bandyopadhyay said that this can be solved through privatisation of public banks by letting the government control banks through holding companies. This will take the banks out of government wage structure and investigation agencies. But this is a politically sensitive issue as it might lead to the violation of Bank Regulations Act of India. Recently, the government launched Indradhanush, brought down its stake to 52% and provided huge capitalization to public sector banks.
Mr Bandyopadhyay concluded by stating that the surgical strikes on banks might have led to the death of few banks but it is a necessity and the positive part is that we are no more in denial and are finally recognising the problem.