Risk
is an important element of banking activity and will
always remain so. Risk is inherent in any business,
but has to be managed by adopting the various risk
mitigating methods. Almost all the PSBs are loaded
with bad debts. The Government of India has initiated
several measures to address this problem but none
of them have been successful. However, the Securitization
and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (Sarfaesi) appears
to have more flaws than strengths.
The
reforms in the banking sector now appears to be in
the final stage since it began in 1991. After having
run the financial sector reforms for a period of over
a decade, there appears to be no respite in the levels
of both the Gross and the Net Non-performing Assets
(NPAs) of Public Sector Banks (PSBs) though in terms
of percentage, the net NPA to net advances has reduced
to 2.80 from the 4.50 of the previous year. This seems
to be still high when compared with the international
level of 2%. But in absolute terms, the Gross NPAs
and the Net NPAs as on March 31, 2004 are put at Rs.
51,537 cr and Rs. 18,860 cr respectively. The staggering
magnitude of NPAs costs the PSBs alone more than Rs.
5,000 cr annually by way of loss of interest income
apart from the servicing and litigation costs. |
