Financial Discipline

The banks in India, particularly many of the nationalized banks are hit by a multitude of ailments like ever mounting bad debts (known as NPAs), bottlenecks in fresh capital infusion, tardy credit growth, fast declining profitability bordering on or already wriggling in losses. The main causative factor for the mess is nothing but bad debts. It is common knowledge that the lion’s share of bad debts is the contribution of big corporate houses, resultant of willful defaults, and frauds committed by the borrowers with the connivance of some intermediate beneficiaries.

The large scale default of big loans by business houses and so called high profile persons and ‘tycoons’ (an aberration which can be called ‘tycoonism’) and the limitations or the inability of the legal system in recovering the amount from the defaulters have sent a wave of delinquency across the banking and financial sector prompting even earlier regularly repaying borrowers to default on their repayments, thereby aggravating the situation on the bad debts front. This tendency has to be arrested at all cost for the survival of banks. For this, the Government should act in such a manner as to send strong messages that loan defaulters will not be left scot free and that no borrower would get a preferential treatment on account of any consideration, whatsoever.

The basic element of financial discipline is repayment disciple. This applies equally to individuals and firms. Once repayment discipline of a community / nation is lost, the resultant perils would be disastrous. Let this does not happen in India. Let us hope the State would take pro-active steps.