Rising NPAs

This refers to “Rising bank bad loans, slowing credit growth” (Business Line, June 10). Recently, the RBI Deputy Governor, Mr K.C. Chakrabarty, said that the interest rates are “not too high” to affect “corporate” growth. He was more concerned with the rising bank bad debts. Even the new private sector banks had relatively high gross NPAs at 2.18 per cent in March. The SBI and nationalised banks still have higher NPAs as a percentage of gross advances. Good credit appraisal, not lowering policy rates, helps reduce NPAs. There is considerable scope for tightening appraisals and intensifying due diligence. NPAs rise when big loans extended to large industries remain in arrears. There is near unanimity that liquidity in the system is not an operational hitch in “transmission mechanism”. The banking system suffers from its loans to sectors such as aviation and infrastructure, and their return will be a long-term story. With slowing growth, the RBI believes that despite inflationary pressures, there is “room to lower rates” to induce growth, when actually the lending and recovery mechanisms need strengthening.

- K. U. Mada Mumbai