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The Global AnAlyst | march 2014 3
EDITORIAL
As the fiscal year 2013-14 draws to an end, India Inc. must be heaving a sigh of relief after facing a tumultuous year during which scams and scandals kept tumbling out one after another, rocking the entire
nation as it watched in disbelief. And now the news of rising NPAs which has been grabbing headlines for sometime now gives rise to the concern about banking sector’s robustness. In fact, recent troubles at the embattled United Bank of India (UBI) clearly underline the fact that if appropriate measures are not initiated at the earliest the troubles could even spread to more banks.However, it is not to say that the central bank is not aware of the NPA crisis that has begun to trouble a growing number of banks. As per a Mint report, in December last, the Reserve Bank of India restrained the Kolkata-headquartered UBI from advancing a loan of more than Rs.10 crore to any single borrower and barred it from restructuring stressed loans. The absolute level of restructured assets and NPAs together is around 10 per cent and that’s not a comfortable level,” the RBI governor Raghuram Rajan had said in an October interview to Mint. The troubles on the NPA front have already begun to hit banking sector’s bottom lines. A number of PSBs reported lower profit numbers during the October-December quarter of 2013-14. Industry experts warn of further troubles ahead as the economic growth continues to remain sluggish, while interest rates remain high which could hurt corporate profitability and in turn constrain their ability to repay loans. A recent study by industry body Assocham adds to the fear. It forecasts NPAs to deteriorate further to reach Rs 1,50,000 crore mark by the end of the FY14 due to the lag effect on asset quality in relation to the state of the economy. Gross NPAs as on September 30, 2013 stood at Rs 2,29,007 crore, 27 per cent higher when compared to Rs 1,79,891 crore as of March 31, 2013 for the 40 listed banks, mentioned the Assocham paper. One of the major reasons, according to the paper, is the guided lending for banks. Besides, factors such as faulty credit management, lack of professionalism in the work force, unscientific repayment schedule, mis-utilization of loans by user, lack of timely legal solution to cases filed in different courts, political interference at local levels and waiver of loans by government have also been contributing to mounting NPAs in India, the paper says. It’s not that the reasons have not been known earlier, but the big question is: were the policymakers and regulators slow in responding to the situation and initiate timely and effective measures. While it’s easy to put the blame on the banking sector for its growing NPA woes, but the corporate sector too needs to share some burden. Every time a loan becomes a bad asset or an NPA, it deprives a needy, prospective corporate borrower of the access to funds and hence can impact its growth. But a much bigger impact can be seen on economy as lack of credit in the system, led by a rise in bad debts, could raise cost of capital for the corporate sector, in general, thereby hurting their growth. Another major worry stems from the growing cases of import alerts and warning letters from the USFDA to several domestic drug makers. In recent times, a number of Indian pharmaceutical firms have invited wrath of the US drug regulator over quality lapses and poor compliance with production standards. These examples really raise alarm bells for India Inc. Needless to say there is a need to raise the bar when it comes to corporate governance and transparency. While these alone cannot treat all ails impacting the domestic corporate sector, they could go a long way in helping the industry put itself on a path of growth and long-term prosperity. May FY15 bring a new dawn of hope.
editor - D Nagavender Raomanaging editor - N Janardhan Rao
editorial director - Amit Singh Sisodiyaadvisory board
Dr. Paritosh Basu, Former Group Controller, Essar GroupN Harinath Reddy, Advocate & Sr. Partner, H&B Law Offices (Hyd)
Sanjay Banka, Chief Financial OfficerLandmark Group, Saudi Arabia
Prashant Gupta, IIT-K, IIM-L, CEO - Edunirvana Dr David Wyss, Former Chief Economist,
S&P & Visiting Fellow, Watson Institute at Brown University. NY, USDean Baker, Economist and Co-founder
Center for Economic and Policy, Washington, USWilliam Gamble, President, Emerging Market Strategies, US
Andrew K P Leung, International and Independent China, Specialist at Andrew Leung, International Consultants, Hong Kong
M G Warrier, Former GM, RBI
CEO - Syed H Maqsood
Executive Director - D N SinghMarketing Head - Amita Singh
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research teamSurya Prakashini (Proof Reader), Anjaneya Naga Sai Prashanth Vijaya Lakshmi, Naga Lakshmi, GV Tarun, Mahesh, Nagaswara Rao and MSV Subba Rao
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march 2014 Vol. 3 | No.3
Amit Singh Sisodiya
Bidding Adieu - The Forgettable FY14