Insolvency and Bankruptcy Code may help to deal with bad debt and NPA

New Delhi, Aug 23: Bad debt and non-performing assets (NPA) are major concern for the Indian banking sector and Indian economy in the bargain but experts on the issue feel that the problem faced by Indian banks and financial institutions are entirely different from the issues faced by banks abroad. So the banks in India will have to deal with it in Indian way.

Girish Chandra Chaturvedi, ICICI Bank Chairman, said that the kind of lending Indian bank do they are typically Indian. Moreover, there are huge debt and recovery mismatch. In foreign country it takes months to get issues related to bad debt resolved but in India it takes 5 to 7 years to get them resolved.

Chaturvedi said that some synchronization was also necessary for curing NPA in the right perspective but still certain issues are to remain due to India being a federal structure. Certain issues related to financing done by Central government while some other are with the state government. However, Chaturvedi was categorical to say that whoever commits the mistake, it is the bank that suffers.

"But until we reach to the last man who is actual beneficiary this will continue," he said.

He further said that Developmental Financial Institution failed in India and they have left huge NPA and Bad debt but they are still needed to be started afresh. However, country cannot allow them to have NPAs to grow like this.

Ravi Krishna Thakkar, MD Uco Bank, said, "Are we in the path of solutions or we need some gigantic solution to the problem of NPA and bank debt?" Initially Public Sector Banks were in small and medium lending but development banking going out of picture PSBs come into picture to invest in big projects. We are not skilled to do that but it is internal and external feature."

He further said, "We mismatched our portfolio that was the reason for bad debt-to-GDP-ratio. But good thing is that we have recognized the problem and again solution is not in the hands of banks. It is nation's money that is struck in the project so how to start these project that is the important issue. Obviously our socio-economic conditions and law are different so we will have to take a call on it."

Former principal economic adviser to the government of India Ila Patnaik said that reforms should have been brought long back but nothing has been delivered. Debt has gone so bad. Insolvency and Bankruptcy Code (IBC) has come up now as bold and tough measures as nothing was happening in the past. "We should not trash IBC but acknowledge it as a bold step and must ensure that it works properly," she said.

She further said, "We liberalised telecoms sector but banking is still under restriction. We liberalised economy but we kept the financial sector closed which is brain to the economy. So for me this is the root cause. Political interference in loan, appointment and transfer that hardly happens in any country in the world. So we must need to pay attention towards it."

Harsh Vardhan, partner, Bains and Company said, "Bad loan is a symptom and IBM can partially solved but not completely cure it. All stakeholders in the institutions has to be reformed."