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Privatise or perish
The RBI's "Report on Trend and Progress of Banking in India 1998-99" reiterates the need for tightening the NPA norms. According to international best practice, overdue loans are classified as past due or non-performing after 90 days, in contrast to the requirements in India, where a loan becomes an NPA if interest is not serviced for two quarters. The RBI has been tightening the screws slowly in this regard, and has moved beyond international requirements by increasing the capital adequacy norms above 8 per cent. It is in the interests of Indian banks to treat the RBI NPA norms as a minimum requirement. A leaf can be taken out of the book of some foreign banks operating in India, which not only use the three-month limit for corporate NPAs, but also consider consumer finance NPAs on a monthly overdue basis.The Report also points out that, taken as a whole, nationalised banks would have reported a combined net loss in 1998-99 but for the interest on the recapitalisation bonds, which helped the banks keep their heads above water. It would be unfair, however, to take the banks as a whole, for the simple reason that most of the losses have been contributed by the three weak banks-UCO, United Bank, and Indian Bank. But it does point out that the recommendation of the Verma Committee for more capitalisation funds is flawed. The truth of the matter is that the Indian banking system cannot be made into a modern financial powerhouse unless and until decades of bureaucratisation are wiped out. The only way that can be done is by privatising the banks. Tinkering with capital adequacy ratios and norms for non-performing assets are not enough. To be equal to the challenges of the digital age, privatising Indian banks is a must. Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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