Trust deficit

Abstract

The bad assets situation did not suddenly fall from the sky. It has been evolving over a period of time. Besides, India is not the only country where bad assets have emerged. This has happened across the world, especially in emerging countries because of a slowdown in their economies. And, this is not the first time we are facing this problem. We had a very similar problem in 1993-94. At that time, our total stressed assets, including non-performing assets, restructured assets and write-offs, were nearly 23 per cent. We successfully came out of that situation because once we know where the problem is, we can address the situation. Remember that even then, most of the banks involved were from the public sector. So we are in a situation where we have the experience and knowledge of where the money has gone. Therefore, India should be able to correct the bad assets episode without any worry.

This situation has been emerging because there were things beyond our control. First, there was a slowdown in the global economy as well as Indian economy. When projections were made and project evaluation was done, they are made on certain assumptions. Because India was a roaring economy and it was growing at 9 per cent and above, all projections and assumptions were made on that growth rate. Once that growth rate suffered, then the assumptions started suffering and consequently, this sort of a bad asset problem emerged.

The external sector situation has also gone bad, especially because of oversupply of steel from China, and textiles from China and Bangladesh. In such circumstances, our domestic industry is bound to suffer, and banks with an exposure to these sectors are going to reflect those difficulties. So I would not blame everything on lack of due diligence, lazy bankers, risky industrialists or the regulator. It is a combination of a number of factors. What we can do is become aware that a problem like this has emerged and be smarter in future, capture these factors, be more careful with risk assessment and avoid taking exposure to large extent in same sector. Read more at: https://www.theweek.in/columns/guest-columns/dont-blame-banks-for-every-glitch-in-the-system.html