The gross non-performing assets (NPAs) of all the banks in the country amounted to Rs 8,40,958 crore in December, 2017, as per the data provided by the Government. India has been ranked fifth on the list of countries with highest NPAs, and is on top spot among the BRICS nations, a recent report by CARE Ratings revealed.
After the exposure of several banking scams recently, the problem of growing NPAs has come in the public domain. Before these banking scams came to light, general public was not aware of the term “NPA” which was considered a technical term known and discussed by experts of the finance and banking sectors. Now it has been revealed that the NPAs accumulated over the last many decades are the real cause of banking frauds as loans were distributed by the banks without obtaining adequate securities from the borrowers.
In his historical speech delivered on 7 February 2018 in the Parliament, Prime Minister Narendra Modi spoke about the problem of NPAs. He said, “I have proof of how the Congress looted and plundered India. You will pay for your sins. Time has come for you to be held accountable and answerable to the people of India. Loans were given without any scrutiny, they were distributed like sweets. Your bad decisions have directly been the reason for failures.”
A lot of discussion is going on in the media and in the banking sector about this problem, but it is a matter of concern and surprise that nothing concrete is being done to stop the further generation and accumulation of NPAs. Before we proceed further to discuss as to why nothing is being done to control the growing NPAs, let us understand, how these NPAs could have been controlled by the banks and the government.
1. There is a system of appointment of independent directors on the boards of the banks. Independent directors of the banks are supposed to see and ensure that the affairs of the bank are being run in the proper manner without causing any misappropriation of the public money. However, the system of appointment of these directors is not transparent at all and lot of people with political backgrounds are being appointed on the boards of the banks. As these directors are still being appointed in the arbitrary manner by the finance ministry, the very purpose of appointing the so called “Independent Directors” stands defeated.
2. There is also a system of appointment of internal, concurrent and statutory auditors of the banks. These auditors are supposed to be appointed in a transparent manner so that they can perform their duties independently. Despite giving suggestion to the government, finance ministry and the RBI by the concerned authorities that the bank auditors should be appointed by some independent agency like the RBI or ICAI, the appointment of all types of bank auditors is being done in arbitrary manner by the banks themselves. The Institute of Chartered Accountants of India is maintaining a panel of chartered accountants who are eligible to be appointed as bank auditors, but why the government is not willing the task of appointment of all types of auditors to ICAI is itself a mystery. Under the present system, the auditors are appointed by the bank itself. If the bank itself is the appointing authority then how anyone expects from the auditors that they will report the misdeeds of the bank? There are several instances when auditors reported misdeeds of the banks and they were never appointed again as a form of punishment. Appointment of bank auditors has now become a lobbying job and if you are getting the job due to lobbying efforts, it is highly unlikely that you will report the misdeeds of the bank due to fear that once you report the misdeeds, you may not be appointed next year. For the last 70 years this arbitrary system of appointment of auditors is going on with the result that the NPAs of the banks are growing with each passing day.
It is very strange that nothing is being done by the present government to improve the system of appointment of auditors and independent directors as these appointments are continued to be done in an arbitrary and non-transparent manner.
