HDFC Chairman Deepak Parekh has rightly pointed out that it is time to bite the bullet on bad loans. The debate for a clean-up on non-performing assets of banks (read bad loans) has been raging in the world of finance, but till date the Centre or the RBI have not revealed a policy for the same. Gross NPAs of public sector banks have been put at 11.2 per cent and 3.5 per cent for private banks. This problem is beginning to impinge on the overall growth of the economy. Baring retail finance, credit growth has dropped to historically low levels and unless something is done quickly India might never attain her true economic potential. The RBI has initiated asset quality review and this has forced banks to reveal the true state of the problem, but the way forward is not clear. Refinance of bad loans through taxpayers money is not a solution because it lets off bankers and borrowers who are responsible for the problem in the first place. What is worrying is how public sector banks allowed NPAs to slip out of control. This can either be attributed to political interference, poor management, corrupt practices or all three. These have to be weeded out if a lasting solution is to be found to this pressing problem.
