Risk In Public Sector Bank Unabated

Since bank nationalisation, banking in India has become increasingly politicised. Non-performing assets will become worse before the general election in 2014. There is already an expectation of yet another write-off of loans by a government desperate to improve its image after being riddled with scams and scandals. In that context, stress tests based on different probabilities of defaults described in the book are useful.

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It is more relevant at an economy's macro level to address issues such as systemic risk, market discipline, liquidity and transparency in the risk-management framework. It is interesting to note that though risk capital may be the necessary safety cushion for banks, capital alone may not be sufficient to protect them from any extreme unexpected loss events. In reality, risk capital will remain only a number and may not be effective if banks do not assess their risk periodically and take timely corrective action when the risk exceeds the threshold limit. Thus, whether it is Basel II or Basel III, it is crucial that a bank does not depend solely on "regulatory capital". What is needed is a dynamic risk mitigation strategy, where all employees act as risk managers in their own area. A proper risk culture needs to be developed across the organisation and " risk" should be an input for future business decision-making. Risk management should not merely be an activity to comply with regulatory requirements.
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The overall bad loan burden of the Indian banking industry has risen sharply in the past one year. Gross NPAs of 40 listed banks rose 46.85% to Rs.1.67 trillion in the September quarter from Rs.1.14 trillion in the year-ago period.

SBI had bad loans equivalent to 5.15% of the total loan book in September 2012. Central Bank of India (5.64% in December), UCO Bank (5.53% in December) and PNB (4.61% in December) are other lenders that have reported a significant rise in bad loans.

The banking industry is witnessing a sharp increase in restructured assets, which have reached about Rs.4 trillion, and analysts estimate that 25-30% of these loans may turn bad.
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Even if   loan accounts became bad , such bad accounts were not considered bad by bankers during last ten years . It was the habit of top bankers to punish officers  who insisted for treating bad loan accounts  as Non Performing asset as per prevalent RBI prudential norms for recognition of income and for classification of assets. Officers not listening to oral advice of top bankers to treat even bad asset as Standard assets were transferred to most critical place and never promoted in promotion processes. Many senior officials have lost the hope of good career in banks and passing their bad days somehow or the other.
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