Assocham cautions RBI, Govt not to over-react on bank NPAs

New Delhi, Feb 23 (KNN) Concerned over a high level of non-performing assets in the banking sector, industry body Assocham has impressed upon the Reserve Bank of India and the government to handle the situation in an extremely prudent and cautious way since any over-reaction can be more damaging to the country's vulnerable financial system.

"It is not correct to assume as if the entire NPA problem has arisen because of the corporate promoters. While this is not time to apportion blame, the fact of the matter is that in the heady years of 8-9 per cent growth and exaggerated valuation across different classes of assets, be it commodities, real estate, equities , crude oil, almost everyone got it wrong. After all, there are well established global brokerage and financial majors which along with the rating agencies which had projected the Sensex to touch 33,000 -35,000 levels," Assocham Secretary General D S Rawat said.

He said if the corporate promoters were going over-board in project expansions on high leverage, the banks were equal partners with a huge financial stake while the regulator too had glossed over the inherent risks which would have crept in the system. Besides, during the period 2010-14, the policy paralysis arising out of over-reach of the judiciary and the government auditor had crippled the project implementation across different industry segments. Licences were cancelled and spectrum scam was making the headlines while the government auditor was going over-board smelling foul play in project after project. The end result was that a large number of projects got stalled with banks' resources getting blocked, said the industry body in a press release.

Over and above, the meltdown in the Chinese economy has dealt a crippling blow to the entire commodity basket. "Just about a few years ago, China was giving us a sense of insecurity when it was buying out crucial assets in steel, aluminium, coal and other metals across the world, particularly in Africa. Now that these commodities have lost valuations, there was a blessing in disguise that the Indian PSUs did not show as much urgency in acquiring strategic assets abroad as was done by the Chinese firms. We must thank our stars".

On the issue of the RBI laying tough provisioning norms for the banks, Assocham said, "it must be ensured that no irreversible loss is done to the banks' valuation and the public faith is not eroded. The government should enhance its commitment towards recapitalisation. After all, the same banks have been rewarding the government with handsome dividends as well". (KNN Bureau)