Monday, March 28, 2016

Can a change of outlook of Banks help, not just favouring the rich defaulter ....

2012 analysis on NPA of banks ..
There is a big anomaly in how the banks approach loan defaulters. A very sincere businessman can become a loan defaulter for reasons beyond his/her control most of the time, due to market conditions, arrival of good quality imported competing products, obsolescence of product, technology improvement or change, political uncertainty etc..

Govt and banks give a gentle warning to big defaulters, while they go hammer and tongs against small defaulters, confiscating their property, material stock, freezing deposits, stopping line of credit etc which leads to sudden and abrupt collapse of business. Are banks aware of CUSTOMER SERVICE even to a small extent as to make the customer feel that he is being served ?

Banks need to seriously ponder over these points. 
1. Have banks carried out a study as to why sincere loan applicants turn defaulters overnight ?  
2. Have bank personnel been told that the money theu handle (other than private banks) belong top the tax payer of the country and it is their prime duty to hand hold the customers if they pass through critical times in their career ? 
3. Why is that banks and govts have such a differentiated, inversely proportional default-severity-impact approach to defaulters in general ?  
4. Does being harsh with strong penal action on the tiny defaulter make the big shark any more strongly remorseful of his guilt and make him voluntarily pay up ?
In practice it is seen that there is no such impact. The more smaller defaulters are being harassed, the bigger sharks escape and continue to misuse public funds, without any feeling of guilt or remorse.Te banks need to look at this peculiar development happening in India. 
5. How do private banks (where there is more accountability of funds as unlike public banks where the tax payer's money is not handled with much caution and care) handle their big defaulters ?  
6. Of the total amount dispersed what is the general ratio of non-productive assets to total assets of the private bank ?  
7. It also makes sense to find how public banks in other countries manage to take care of this risk of assets turning non-productive over time ?  
8. How do those countries ensure there is prompt pay off of the capital and less risk of an asset turning non-productive ?  
9. If an aggrieved bank customer feels that he has been prejudicially moved against by the bank, resulting in his business being wound up, how can the capital repayment be initiated with least pain for both bank and the valuable customer with least of legal hurdles toppling any moves of reconciliation?

Entrepreneurs and farmers are the people who create wealth and employment in the country, THE PRIME MOVERS OF THE COUNTRY ! The employees of banks are just employees and servants of the public, their job is to serve the customers ! They are contributing least in the development of the economy and the growth of the country than adhering to disciplinary ways of dealing with the customers.

The stress on the banks who take pains to liquidate a good "small" customer on charges of his missing one or two instalments, should be not to see how the business can be wound up, instead should focus on how the entrepreneur could be handheld to become more profitable and viable in the long run.

The bank officials should be taught that their job is not to boss around with the tax payers money, instead handhold the customer through his difficult times. He is not just custodian to tax payer's money, but to see how productively they could be managed for the common good and to keep track of what proportion of their capital is invested in sunshine sectors offering good rates of return, while taking care of low performing , employment intensive sectors.

A new metric on banks as to what proportion of non-performing assets have been transformed to productive assets (NPA2PA conversion ratio) in that branch / region / head office etc.need to be taken up.The NPA to PA conversion ratio, will make sure that banks don't proceed severely on defaulters's assets which in spite of their best intentions have turned non-productive due to factors beyond one's control. The bank should in turn try to see how they can handhold the stressed customer and guide him to better performance and productivity. 

For this it is also essential that banks have experts who can help guide sick industries to good health. Banks only have the penal action for customers, they do not have any medicine to take care of customers.

How banks can take care of this differential approach to NPA handling. 
1. Banks need to gve more detailed attention to differentiate between a not-so serious defaulter and a serious defaulter.  
2. Banks should take penal action on all types of defaulters equally without any partiality. 
3. If under an region or a branch, the incidence of NPAs is a matter of serious concern, then explanation should be asked of the officer handling the customer, irrespective of the size of the customers default 
4. Rather than looking at penalising actions against customers, banks need to design and implement proative and productive steps to see  how existing sick accountscould be salvaged. 
5. Have industry experts / elderly bankers employees as customer assisting officers whose main job is to handhold stressed customers at all times.

This is the only way banks can get a customer friendly image and help the customers, the entrepreneurs, who are the real prime movers of the economy.


PS : I am an engineer with some basic understanding of finance and running business. Pl highlight any factual error in this analysis.

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