Sage advice

Sage advice

News:

1. Former RBI Governor Raghuram raised concern over high Non Performing Assets (NPA) of the banks.

Important News:

2. According to Raghuram, Government is not taking serious steps to tackle the issue of NPA.

Factors contributing to high NPA and issues with them:

3. MUDRA CREDIT: – Small loans provided to Micro and Small Medium Enterprises.

Under Pradhan Mantri Mudra Yojana loan of ₹6.37 lakh crore, which is over 7% of the total outstanding bank credit disbursed to the sector mostly belong to informal sector.

Though, these are small loans up to Rs.10 Lakh to each, it builds into large credit over a period of time.

Since borrowers mostly belong to informal sector, bank needs to monitor them closely.

Rising concern is if Banks have enough manpower to chase and recover the granted loan.

4. Kisan Credit Card: Provide adequate and timely short-term credit needs of farmers during the cropping season.

Credit provided under Kisan Credit Card also goes to informal sector and hard to recover.

Loan waiver scheme further discourages small farmers to pay their loan leading to less recovery by banks.

5. Credit Guarantee Scheme for MSMEs: In which small loan is given to MSMEs and it is run by Small Industrial Development Bank, having the same issues of loan recovery.
6. As per RBI recommendation, recognition of bad loan should be the first step in an effort to clean-up NPA.
7. And once the Banks are clean, they can further make fresh loans.
8. Other Recommendations provided by RaghuramRajan

Professionalising bank boards with appointments done by an independent Banks Board Bureau.

Bring talent from outside banks.

Revising compensation structures to attract the best talent.

Ensuring that banks are not left without a leader at the top.

9. Finally, he has raised concerns over political parties for their un-justified policies such as Loan waiving schemes.