Banks' balancing act

Sir, - This is with reference to `Banks will not collapse: Sinha' (Sept. 3) and the statement `Governments have lied to the people in the past five years' the next day in an article by Prem Shankar Jha (`Still playing ostrich'). Though the financial institutions in our country are in a bad shape, our Finance Minister wants us to believe that the banks will not collapse.

Ours is perhaps the only country where a borrowal account is classified as an NPA (non-performing asset) if the interest remains unpaid for 180 days (the international norm in 90 days). Even here, it is common knowledge that banks do evergreening of loans to show lesser NPAs. This has been mentioned even by the Reserve Bank of India. The balance sheet of many banks are being qualified by auditors but one wonders whether what the public actually gets is a balance sheet that has been truly ``balanced.'' For example, the balance sheet of the weakest nationalised bank has qualifications such as accounting of certain income on cash basis, which is not in accordance with the C.A. Institute's accounting standards. Again the impact of non- reconciliation of outstanding items on the balance sheet is not ascertainable. In this scenario, the balance sheet the public gets to see is not dependable.

An interesting example is the case of the Indian Bank which has asked for the recapitalisation of Rs. 200 crores from the Government. As per its latest balance sheet (31 March 2001), the difference between gross and net NPA is Rs. 1,409.14 crores which should represent the value of collateral securities held by the bank, with respect to the NPA accounts. Why can't the bank sell those assets and raise cash rather than repeatedly ask the Government for money? Something seems to be wrong somewhere. Further, many banks themselves buy assets of the NPA accounts at inflated prices and show the amount under `recoveries'.

The root cause of all these problems is non-repayment of loans. Laws should be made easier for the banks to sell the assets of the defaulters (without having to go to courts) and save our financial system from collapsing.

N. Kalyanaraman,

Chennai

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