Business Mantra: Faridabad
It has become human nature, if law of the land helps to bring out the culprits & save the innocent, the laws are enacted, loopholes are created and are being misused. In Public Sector Banks (PSBs), whenever an account gets NPA, it is often observed that Bank officers are in more stress then the borrower itself. This is one of the reasons the Bank officers tend to hide NPA accounts.
When the issue of hiding of NPA was discussed with one of the senior executives of PSBs, then with a condition of anonymity, he disclosed the following reasons for hiding NPA accounts:
- Pressure of Senior Management to keep the Balance Sheets in profit
- When Quarterly/Half-yearly/Yearly results are good then senior bosses get awards and their further promotions are assured.
- Loan officer, Loan Manager, Branch Head, Regional/Circle/ Zonal Head, GM’s, EDs, CMDs at Banks’ HO, everyone in fact feels happy when the Balance Sheet gets finalized with least declaration of NPA figures.
Even the officers, Secretaries and Ministers at DFS (Department of financial studies) and Ministry of Finance feel happy and give reward to such Bankers.
- Whenever any account is declared NPA, immediate investigation and audit is ordered into that account. Then all the sanctions documents, forms in loan file and working of Bankers during that particular period, the account got bad, are inspected. If account is big then this investigation/ inspection/audit get tough and are done repeatedly.
So the staff and the Branch Head at the Branch also try to save the account from getting declared NPA.
- Sometimes, some of the Bank officers sanction loan limits to non eligible account under some pressure of seniors, other big customers of Bank or even sometimes in exchange of some consideration. When any of such accounts turn NPA then Branch staff and Branch Head do not classify such account as NPA and try to save it by hook or crook with a wish that within the given financials position of borrower they may recover and over-dues may be repaid or account is not classified NPA for at least 1 to 2 years to save from quick mortality (Account becoming NPA within one year of its original sanction). As in case of quick mortality punishments are more stringent.
Now the other part of the question may be discussed that how the Banks hide NPA accounts:
- Manual interference in CBS Environment: Presently most of the Branches of Banks are under CBS. Computer software and the information systems are well designed to automatically classify an account as NPA under the set norms. The Bank when, wants to hide that NPA, they may interfere in the CBS working by either changing repayment period or the installment starting date.
These activities are done even without actual re-structuring of an account.
- Adjustments in NPA accounts through Borrowers: Bank officials suggest the borrower to bring down the balance in the account for one day in case of Cash Credit or Overdraft Accounts and again increase the balance in the account to the same level so as to avoid declaring of NPA for another 30 days.
- Saving from Quick Mortality: Sometimes Bankers want to save a particular account from becoming NPA under quick mortality, so they go one step further. They suggest the borrower to make one more firm and submit a loan application in other family member owned firm or company. With the finance in the second firm, they save the NPA in the first firm for another 3 to 6 months.
- Internal Adjustment Entries: Bankers pass some internal adjustment entries in the potential NPA accounts on quarter ending dates and then in next quarter beginning, these entries are reversed. Even sometimes Bankers transfer funds from the accounts of other customers (may be with their consent) for one or two days. Again these entries are reversed after one or two days. This way the account is saved from classifying as NPA.
If penalties and pressures are imposed upon the borrower and are strongly implemented, then there are chances that the borrowers will take banking norms seriously and shall not divert the funds, at least there will be discouragement to willful defaulters. But it is also observed that sometimes innocent Bank officials are also victimized, penalized and even dismissed in the name of such wrong practices.
Again if the Banks become more stringent then our Prime Minister’s agenda of “EASE OF DOING BUSINESS” may get affected.
So the Banks have to maintain a balance between:
- To be tight on ‘Willful Defaulters’.
- Be helpful to the good and honest businessmen in stress
- Also make sure that Innocent and Loan Sanctioning officers with bona-fide intention are not victimized in the name of wrong doings.