Page 15 - Intl. Review (Draft 1.3)

FE A TURED
cious in the sea of open waters.
In fact, GNPAs were also down
190 bips in FY2019 - from a 11.2%
high - all the way down to 9.3%.
With further improvements in
capital to risk-weighted assets
ratios (CRARs) and overall provi-
sion coverage ratio (PCR) firmly
laying the case for uncanny op-
timism.
1.1 Saved by the bell?
Even so, the outlook stood
far from being all sunshine and
rainbows. A stress-tested sim-
ulation lay claims of a peaking
GNPA all the way to a 13.5% hike,
with fringe prospects of touch-
ing base with 14.8% too, all in
time for fall 2021 by September.
At the face of it, these numbers
should be sending shockwaves
of austerity for regulatory ac-
tion. And indeed, RBI does stress
Volume #01
FEATURED
the need for individual banks to Debt Recovery Tribunals, to the
pull their weight and their socks Lok Adalats, from the SARFAESI
up by the scruff, and strategize Act to the innumerable rounds
capital provisions in a crucially of debt restructuring. Volley af-
executable manner (though RBI ter volley of minor nudges and
backhanded that threat with levees in the face of a grow-
their comforting belief that SCBs ing mountain of trouble. Finally
as a whole had enough capital forcing the need for an entire
to sail through). rework of the bankruptcy mech-
So, all in all, the entire anism, almost from the ground
hubbub fizzled into being yet up. The product of which was
another illustration of the gran- the much-celebrated Insolvency
diloquent legend of the invisible and Bankruptcy Code (IPC) of
hand balancing the forces of or- early 2016.
der & disorder in counter-acting All of these moves were, in
balance. However, a momentary theory, diversely varied to cover
breakthrough in a sea of a de- nearly all segments of the debt
cade-long skirmish should not insolvency cycle, but in prac-
be time for a breather, or worser tice, moot. As the crescendoing
yet, holidaying. critical mass of the mounting
Rather, it’s a strikingly op- menace kept trapezing through
portune moment ripe for poli- its monstrous climb. And at the
cy discussion for the long-term heart of it all? Were the twins.
sustainable curtailment of this
moat-gator of a pickle. Afterall, 2.1 Eruptive Brotherhood: Evil
this was far from a first rodeo Twining of the Twin Balance
for the banking system brush- Sheets.
ing against the Blackbox that To illustrate, let’s begin
this NPA rabbit hole can be, and with the metaphor of a winner’s
has become. As far back as the curse, it is a staple term in auc-
days of ’91 at the inception of tion houses, it’s when the win-
economic liberalizing when the ning bidder woefully overbids
NEP was soaking the deficit spill the actual fair price of the item,
of an economy spiralling regres- bleeding himself dry making a
sively in regression with decades loss in the process of “winning”
of delinquently decadent doc- the bid. The “Twin Balance Sheet
trines. Back then is when the first (TBS)” problem is an economic
NPA tryst puffed its wings in the behemoth rather akin to such a
white papers of the Narasimhan nutshell analogy. TBS is when an
Committee. As it lay the guiding economy faces a double wham-
principles of dealing with the my of leveraging stress on both
NPA riddle, and built the ground- the crediting banks’, as well as
work for settlement through As- the borrowing firms’ parts. It
set Reconstruction Companies takes form during booming pe-
(ARCs). Ever since that marked riods of the economic cycle
day, NPAs have been an identi- where optimistic extrapolation
fiable yet perpetual headache. sails growing firms into overly
giddy debt financing waters that
2. BACKGROUND leave them overextended by a
The bureaucratic outreach long stretch, facing a tall order
into the belly of the beast has of jeopardized stakes of missing
been an anticlimactic, albeit as- exorbitant interest payments at
siduously active, story. From the the slightest of forecasted fluc-
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