a few suggestions to reduce Banks’ NPAsPosted: February 15, 2016
Following steps can reduce NAPs of Banks? will they consider?
Present financing pattern of Banks are:
a. Industry approaches D banks for finance
b. when D loan amount is very large a consortium of banks approach IDBI for refinancing.
IDBI is supposed to be an expert with knowledge of how industries work and their financial needs (unfortunately IDBI works as another financial institute with no knowledge about industries – with a little financial risk – it only refinances D loans given by banks & risk of recovery lies with banks (methodology is – refinancing is done with EMIs which banks are supposed to pay back as per schedule).
1. IDBI carries out project appraisal (Note: NAPs are the projects which are financed with a preset idea of financing the project at any cost) –IDBI thinks its sole objective is to fiance a project when it comes with a political clout – what may come – even when the project analysis shows it is nonviable & sure loss making unit.
2. no doubt IDBI have certain set norms to analyze a project before financing a project – they use computers to analyze the viability of the project – unfortunately they manipulate the parameters given by entrepreneur to make project viable to meet the financing norms – when it isn’t (an undesirable approach).
3. this manipulation of norms like i) implementation time ii) preproject expenditure iii) advertisement expenditure iv) product quality evaluation expenditure v) marketing expenses vi) gestation period v) pre production product wastage etc are very vital parameters which are provided by the entrepreneur with his project background – will no doubt make a project nonviable – yet financed.
It makes no sense to tamper with them by people (IDBI employees) who lack knowledge about them just to meet their financing norms – a sure recipes for NPAs.
4. Refinancing is a sure NPA & restructuring the loan to same management – when they fail to make it a profitable venture (a sure menu for NPAs) – they are re-financed by IDBI as it thinks it is their sacred duty to finance industries with political clout?
Findings: IDBI should come out of this culture to reduce NAPs just like Japan by learning a few methodologies followed by them to bring their country from shambles – after world war ii – to an undisputed industry & finance leader.
More details at how to manage failing ventures: https://sofjustice.wordpress.com/2012/10/05/we-can-find-solutions-for-many-failing-ventures-in-india/
The article is based on the experience of the author with IDBI, IPICOl & OSEDC.
He was associated with them in appraising some projects (analyzed with soft wares called bottom line analyzer & Microsoft 123). D analysis showed the projects are to be sure losers – unfortunately they are financed by manipulating the parameters – and indeed they all became NPAs – Electronics development corporation of Orissa is one along with many industries it financed. Many industries financed by IPICOL are no exception.