COBCAM 2017: ECHO: Panel Discussion on “Is the creation of a bad bank beneficial to the banking sector? Can it replicate the advantages as seen in other countries?”

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Mr. Sandeep Hasurkar, Vice President, IL&FS Renewable Energy Ltd.

Mr. Sandeep complemented students for their spirit in banking. He said that there are two to three basic issues in the case of bad banks. He stated that shifting NPA from one balance sheet to another (called structuring) does not address the root problem. He believes the responsibility of recovering money should be on the lender. He elaborated that banking has been at the apex of Indian economy and has helped India on many accounts. He lamented the Indian tendency of depending on government and said that the moral hazard-breaking contract and shift this NPA problem to the government should be solved.

Further, he questioned the accountability of banks and bankers if this is allowed to happen. He believes that some degree should be borne by the banks. He said that banking has largely become a bureaucracy. So he concluded that bad banks only for shifting NPA’s off the balance sheet is a bad idea as it removes accountability from the banks.

Mr. Rajesh Parthasarathy, Managing Director, Growth Trust Ventures Consultancy Pvt. Ltd.

Mr. Rajesh started off by saying that there are various ways of managing a bad bank. He said we need to understand the issues inherent to the problem before tagging them as bad banks. There are different legal systems and kinds of industries, all of which could have different perspectives of viewing bad banks. Customization needs to be done regarding what is suited for each bank in India. Fundamental reasons behind the issue could be infrastructure, transmission losses, road traffic etc. which need to be deliberated carefully. In-depth solutions to core issues need to be done while analyzing the scenario.

Mr. Debashish Sarkar, Chief General Manager, State Bank of India

When Asset recovery companies (ARC) were not working so well, bad banks have come into existence. Many countries like China, Sweden have gone through a phase where ARCs did not work up to the mark.

Mr. Sarkar said that banks will feel free to do business if banking sector is revived. He also stated that many companies have bad balance sheets but have loans approved. Lots of decisions are taken for non-commercial reasons.

You should have the responsibility of what you do but unfortunately, in public sector, this has not been possible.  Banking is like driving a car in a single route but imagine if a truck comes in front you. If you keep on following the same route you may meet with an accident. If you create an environment where processes become more important than decision then decisions loose the value.

Apart from this, nowhere people have been involved in deciding the correctness of the record, but then also a man taking loan can be arrested for fraud. Imagine a situation where one loan which is bad is brought in a bad bank but can be recovered and another loan is brought which is totally unrecoverable. There are no ways to segregate these two types of loans

All these problems occur only because there is hardly anyone available with a project management mindset.

For example, a man has to make 30 km road connecting two states. 28 km is built but last 2 km was not completed due to government rules in the second state. This case, when applied to a bad bank cannot be resolved easily as there is no fault of person or bank. Thus it becomes a dead loan. A proper project management is what is required.

Indian Judicial Academy in Bhopal is the place where all the judicial officials go for training. None of the judges have slight ideas that how their decisions impact NPAs. If these things are taken into consideration, bad banks can do amazingly well.

Mr. Ritesh Kumar Agarwal, Founder & CEO, FonePaisa Payment Solutions Pvt. Ltd

Mr. Ritesh views bad banks in a positive light, arguing that bad banks can correct mistakes while normal banks are capable of only reporting them. He stated that operating in a bad bank would require a different mindset and the employees must behave as “Project Managers” rather than as “bankers”. However, he stands by the opinion that banks should take ownership for the decisions they make.

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