Wednesday, February 15, 2017

BANKING SECTOR- LOOKING FOR GROWTH CATALYST, STRATEGY , MONITORING NEED

The banking sector has passed through turmoil during last few years of UPA II and the Indiscrete lending without adequate due diligence, non adherence to financial management principles, excessive leveraging, diversion of funds and lust for too fast growth has brought to us now a very serious situation. The growth of banking sector and their sustained existence has become a matter of very serious concern for last 2 years.The banks are now flush with funds due to demonetisation and lack of credit growth and still are not able to lend, in the absence of visionary management, lack of proposals, big hesitation in banking sector to further lend even to good proposals. The fear of CBI and vigilance regarding backdrop of large NPA's are dissuading bankers to take pragmatic decisions inspite of very significant positive structural change and basic policy changes.Supporting a growth scenario, the promoters are not coming forward to take on expansions or diversification, specially in manufacturing sector.The lack of risk capital inflow in the absence of credibility of capital market is another big damper. A major reform strategy is needed in public private partnership to bring out new investment, where the equity support is provided by the Government, Central and State PSU's, banks and investment pulling vehicles. The real sustained growth will come by regular application of basic financial management principles, transparency, ethics and real corporate governance. The government and RBI need to beef up regulatory and monitoring systems and need not micro-manage the affair of banks. The Equity (Risk) Capital needs to be channelized into new and expansive units bringing cost of the funds substantially down. The Gross NPA and Net NPA both are very large. A significant portion, 70% of these asset is locked into large borrowed 5000 crores or more as a group. The regulatory mechanism of RBI and functional control as well as administrative mechanism of individual banks has failed miserably. Even private sector banks have suffered deep NPA losses. The Banking Sector is backbone of Indian economy and for sustained growth of manufacturing, services,
agricultural as well as to achieve Make in India, a vibrant and strong Banking Sector is a must. The role of catalyst is to be played by top financial experts to check out a clear strategy for revival of all borrowing entities by bringing their debt levels to sustainable level. The following suggestions may be considered by Bank
Sector:-
  • Construction of Special Task Force in all banks
  • Purchase of all such assets in a separate pool by bank for further disposal- as a trustee
  • Restructuring of Advances
  • Options to management to pay optionally convertible debenture over 8 years after 2 year moratorium.
  • Separate Bad Bank- may be reconsidered as it may be too difficult by one entity to manage so much.
  • Independent Bank Directors
  • Recapitalization of Small Banks needed for growth 

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