Topic Of The Day:-“Burden of bad loans”
On the supply side, the big constraint on fresh lending is the burden of non-performing assets (NPAs). The NPA ratio has been deteriorating for more than six years, and worse is yet to come. The diagnosis of worsening NPAs reveals five different causes, not all caused by the bankers themselves. The first is the disproportionate share of loans that went to infrastructure. These projects are of long gestation and long payback period, so unsuitable for bank lending. That creates an asset liability mismatch for banks, since the liability side is of a short-term nature. During the UPA regime, public-sector banks were under pressure to fund the ambitious $1 trillion infrastructure vision. Normally such projects ought to be funded by long-term bonds or developmental organisations like the World Bank or the Asian Development Bank, or the IDBI in its original avatar. But in the absence of those options of development finance, it fell to public sector banks to provide infrastructure finance. This led to over-exposure. The second reason for deterioration of loans could be the impact of key judicial decisions like abrupt cancellations of coal mines and spectrum allocation. When the same were re-allocated through expensive auctions, it proved to be a fatal burden on respective business models of power, steel and telecom. The third reason for worsening NPA ratios could be the delays caused by land acquisition and environmental clearances. This reason for NPAs was adequately documented in the Economic Survey. The fourth reason is the Asset Quality Review mandated by the Reserve Bank of India (RBI) in 2015. This was much needed, since it put a stop to the “extend and pretend” culture around worsening credit. To be fair, the RBI showed great regulatory forbearance in allowing lenders to work out remedies for genuine cases which faced a business cycle downturn. Various options were made available, including extending duration of loans, debt restructuring, swapping equity for debt and so on. But it does not seem to have made any significant difference. The NPA recovery process has since got a boost due to the new insolvency and bankruptcy law. The government too announced the Indradhanush scheme focused on banking reforms and recapitalisation of NPA-burdened banks. Two instalments of infusion in the past two years proved woefully inadequate as the NPA ratio continued to mount. The fifth reason for worsening NPA is an omnibus called “malfeasance”. This includes cosy relationships between banker and borrower, crony capitalism, political interference in lending decisions (a legacy of the past), a less than vigorous attempt to recover past dues, careless due diligence, etc. There may be other reasons as well. The fact is that 10% of all loans have gone bad. No wonder that after provisioning, for many public-sector banks their net worth would be completely eroded. Hence the days of piecemeal and feeble remedies are gone.
MEANINGS AND WORDS
1) Constraint
Meaning: Stiffness of manner and inhibition in relations between people.
Example: They would be able to talk without constraint.
Synonyms: Inhibition, Embarrassment
Antonyms: Openness
2) Deteriorating
Meaning: Become progressively worse.
Example: Relations between the countries had deteriorated sharply.
Synonyms: Worsen, Decline
Antonyms: Improve
3) Reveals
Meaning: Make (previously unknown or secret information) known to others.
Example: Brenda was forced to reveal Robbie’s whereabouts.
Synonyms: Divulge, Disclose
Antonyms: Hide, Conceal
4) Gestation
Meaning: The development of something over a period of time.
Example: A thorough and painstaking work which was a long time in gestation.
Synonyms: Development, Formation
5) Ambitious
Meaning: (Of a plan or piece of work) intended to satisfy high aspirations and therefore difficult to achieve.
Example: An ambitious enterprise.
Synonyms: Difficult, Exacting
Antonyms: Modest, Easy
6) Ought to
Meaning: Used to show when it is necessary or would be a good thing to perform the activity referred to by the following verb.
Example: You ought to be kinder to him.
7) Avatar
Meaning: An incarnation, embodiment, or manifestation of a person or idea.
Example: He chose John Stuart Mill as the avatar of the liberal view.
8) Abrupt
Meaning: Sudden and unexpected.
Example: I was surprised by the abrupt change of subject.
Synonyms: Sudden, Immediate
Antonyms: Gradual, Unhurried
9) Auctions
Meaning: A public sale in which goods or property are sold to the highest bidder.
Example: the books are expected to fetch a six-figure sum at tomorrow’s auction.
10) Acquisition
Meaning: The buying or obtaining of assets or objects.
Example: Western culture places a high value on material acquisition.
Synonyms: Gain, Attainment
11) Pretend
Meaning: Behave so as to make it appear that something is the case when in fact it is not.
Example: I closed my eyes and pretended I was asleep.
Synonyms: Profess, Affect
12) Forbearance
Meaning: Patient self-control; restraint and tolerance.
Example: His unfailing courtesy and forbearance under great provocation.
Synonyms: Tolerance, Patience
13) Downturn
Meaning: A decline in economic, business, or other activity.
Example: A downturn in the housing market.
14) Infusion
Meaning: The introduction of a new element or quality into something.
Example: The infusion of $6.3 million for improvements.
15) Woefully
Meaning: In a manner expressing sorrow or misery.
Example: She sighed woefully and walked out.
16) Omnibus
Meaning: Comprising several items.
Example: Omnibus editions of novels.
17) Malfeasance
Meaning: An example of dishonest and illegal behaviour, especially by a person in authority.
Example: Several cases of malpractice and malfeasance in the financial world are currently being investigated.
18) Cosy
Meaning: Giving a feeling of comfort, warmth, and relaxation.
Example: The flickering lamp gave the room a cosy lived-in air.
Synonyms: Snug, Warm
Antonyms: Uncomfortable
19) Diligence
Meaning: Careful and persistent work or effort.
Example: Few party members challenge his diligence as an MP.
Synonyms: Assiduity, Rigour
Antonyms: Laziness, Careless
20) Piecemeal
Meaning: Characterized by unsystematic partial measures taken over a period of time.
Example: The village is slowly being killed off by piecemeal development.
Synonyms: Gradually, Slowly
21) Feeble
Meaning: Lacking physical strength, especially as a result of age or illness.
Example: By now, he was too feeble to leave his room.
Synonyms: Weak, Puny
Antonyms: Strong
