BUSINESS

‘Consortium lending led to more NPAs’

Tough times:There have been several cases where there has been clear breach of trust, says Rajnish Kumar.Reuters

Tough times:There have been several cases where there has been clear breach of trust, says Rajnish Kumar.Reuters  

Consortium lending often led to inordinate delays in loan appraisal and resulted in swelling non-performing assets (NPAs) in the banking system, according to Rajnish Kumar, Chairman, State Bank of India.

Consortium banking, as it was called till mid-90s, later became multiple banking following complaints of delay in appraisal process but even this did not result in faster decision-making, Mr. Kumar said at a FICCI-IBA seminar on Monday. On the other hand, it had led to more NPAs, he opined.

Apportioning the blame for the sharp rise in NPAs over the last few years between bankers, the government, corporates and even the judiciary, he said everyone was responsible for the situation.

“The problem of stressed assets, many people ask me, who is responsible for that. That is a question with which the country is grappling,” the chief of the country’s largest lender said.

“I would say everybody is responsible, be it the bankers, be it the industry or borrowers, be it the government and without inviting contempt of the court, even the judiciary has played a role in this situation,” Mr. Kumar said.

According to a report from ratings agency Crisil, gross NPAs rose to about Rs. 10.3 lakh crore, or 11.2% of advances, as of March 2018, compared with Rs. 8 lakh crore, or 9.5% of advances, in the year-earlier period.

Availability of equity

Going forward, it would be very important, while evaluating a financing proposal, to ensure that the promised equity was very much available in the business, he stressed.

“When banks are giving money they do not have the mindset of the CBI or the Enforcement Directorate and we lend the money on trust apart from paperwork. There have been several cases with clear breach of that trust. Now, we will trust but we will verify; probably that verification factor was missing,” he said.

Separately, RBI Deputy Governor N.S. Vishwanathan stressed the need for strengthening credit bureaus. However, the government would need to make legislative amendments to facilitate it, he added.

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