The Centre of Excellence for Banking and Finance (COEBF), ICFAI Business School, Hyderabad, hosted the inaugural session of the Academicians & Practitioners Summit on Banking and Finance (APSBF) 2023 on November 24 at ICFAI Foundation for Higher Education, Deemed University Campus, Hyderabad.
Delivering an enlightening inaugural address, Padma Vibhushan Dr. C. Rangarajan, former chairman of Economic Advisory Council to the prime minister, former governor, Reserve Bank of India, and the current chancellor, ICFAI Foundation for Higher Education, discussed elaborately on the problem of NPAs plaguing the banking industry. He narrated how there was a shift in the focus of the banking industry from “allocational efficiency” to “operational efficiency” ever since the 1991 economic reforms, and how NPAs are a significant aspect of operational efficiency of banks.
He noted that there has been a dramatic reduction in the ratio of Gross NPAs to credit from 11.2 percent in 2017-18 to 3.9 percent in 2021-22. The substantial write-offs of NPAs by banks year after year was found to be a major factor contributing to a reduction in the reported ratio of NPAs to credit. Dr. Rangarajan opined that it’s not the write-offs that create worry but the lack of adequate recoveries that should be a matter of concern.
According to Dr. Rangarajan, the extraordinary non-food credit boom during the period 2003-12, and credit extension by NBFCs contributed to the rise in NPAs. He highlighted the fact that India was no exception to the phenomenon of a credit boom leading to a stressed banking sector. Exuberance in lending to certain cyclical industrial sectors and regulatory forbearance has also led to the piling up of NPAs. The stringent Asset Quality Review policies of 2015 were rather too late to arrest the damage.
Dr. Rangarajan highlighted the lessons to be learnt for the RBI, Government of India and the banking industry. While lauding the efforts of RBI’s action on tightening the policies on unsecured personal loans, he opined that RBI should regularly monitor credit growth, avoid over optimism and too much caution, while regulating credit. He suggested that regulation is no substitute for good governance and compliance does not always automatically translate into better regulation. Insolvency Bankruptcy (IBC) is an important innovation; however, its implementation should be effective with speedy resolutions.
Drawing the attention of the government, Dr. Rangarajan, cautioned that while it is appropriate to nudge the banking industry towards fulfilling national interests, it is also important that commercial business decisions are left to the individual banks. He suggested that the government should promote specialised institutions for project finance, dissuade consortium banks from piggybacking over one lead banker’s credit appraisal, promote corporate debt markets, and recapitalise banks through cash, rather than only through bonds.
Finally for the individual banks, Dr. Ragarajan suggested that each individual bank needs to assess their own risk appetite and improve their overall risk management systems, rather than leaning on a single large bank leader. Timely upgradation of credit appraisal techniques, monitoring skill sets of employees, forensic auditing, credit monitoring and unbiased credit rating are the need of the hour. Only joint efforts of the various stakeholders can help in strengthening the banking system, he opined. Quoting Paul Krugman, Dr. Rangarajan said, that banks should neither be “Boring” nor “Adventurous”, neither “Lazy” nor “Hasty”, rather they should be “Prudently Balanced”.
Prof. J. Mahender Reddy, distinguished advisor of the ICFAI Group, gave an overview of the two-day summit in his welcome address. He said that the two-day APSBF 2023 is a significant event in the city of Hyderabad on the banking and financial sectors, and it will be deliberating on issues related to ESG, fintech, non-performing assets of the banks, and challenges faced by the NBFC sector, and it will host CEOs and distinguished researchers and professionals from the banking and financial services sectors.
A constituent of the Hyderabad based ICFAI Foundation for Higher Education, Deemed-to-be University, ICFAI Business School (IBS) is a premier business school that has been consistently ranked among the top 10 B-Schools of India by independent rating agencies.
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