'Rings Of Fire’ In The Banking Sector

Apr. 05, 2012 10:09 AM ET
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Contributor Since 2012

I am a financial enthusiast willing to share knowledge on equity, stock market and mutual fund market in India. I have also conducted a detailed analysis on commodity research and commodity research reports operating in India.

"A bank has to be a bank. And the bank can only be a bank if the money that is lent comes back to the bank". These words said by our ex-Finance minister in the wake of the 2008 global crisis, wherein most of Americas and Europe's financial structure got immersed can be considered as a simplistic but prophetic statement in the light of current events unfolding in the Indian banking sector. A closer look at the current state of both public and private banks in the banking sector easily showcases the ability of banks in retrieving their lent working capital from various small and large corporate which are on the verge of currently being labeled as full blown NPA accounts. The latest to join this growing list is construction leader HCC whose working capital accounts are on the verge of becoming full blown NPA's with their respective banks.

Another point that can be highlighted is that most banks in this fray are the large public and Indian private sector banks which can be seen as development of a growing 'NPA ring of fire 'with more small and large corporate adding to the list of NPA accounts of their banks. Increase in the NPA % of any bank will proportionately affect the financial health of any bank and In such cases in my opinion it's only a matter of time when the ensuing NPA domino effect trickles down in a negative manner to the consumer both retail and corporate at large.

However like how every coin has 2 sides, same is case for the banking sector, the concept of 'customer is king' has remains true eternally and so when customers get harried and are inconvenienced with bad banking measures they would probably be inclined to discontinue and look at other investment avenues.

It's sad that even measures carried out by the regulator in this sector which involved tightening of the provisioning framework of banks have not effectively helped in curbing the increase of NPA accounts.

Undertaking a sectoral analysis of the banking sector in relation to increasing prevalence of NPA accounts also attribute to weak screening from the credit team who objective of identifying stress points and sending early warning signals seems to have been done poorly. Had the growth of NPA accounts been curbed in their nascent stages it wouldn't't have snowballed into the complex financial maze of hurdles that banks and corporate find themselves engrossed in.

I am totally against Banks or on a macro front the government against bailing out corporate in the NPA bucket of banks. I would like to conclude by quoting a known Industrialist 'That those who die must die'. This causes the layman's hard earned bread his own and if it dawns on him that his life time savings are being heckled to save NPA designated business units, he would find it difficult to digest it irrespective of the complex metrics involved.

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