MUMBAI, Oct 6: Bankers are looking for a new definition of non-performing assets (NPAs). There was a virtual consensus on this issue at the first technical session at the 20th Bank Economists' Conference on Monday. The conference, hosted by Mumbai-based Bank of India, has its theme: Indian banking: Second phase of reforms -- Issues and Imperatives.

Private sector United Western Bank's chief executive PN Joshi set the ball rolling. Canara Bank chairman-cum-managing director TR Sridharan later strongly supported his quest for a new definition of NPAs.

Unless the concept is redefined, the capital account convertibility panel's stipulation of five per cent NPAs as a necessary precondition for full float of rupee will be a pipedream, Joshi said. The NPA norms have created a scare among the lowest of the bank executives, leading to an extremely tardy credit offtake. He said many of the advances are turning into NPAs primarily due delay in project implementation and frequent changes in the customs and excise duties, making it difficult for the manufacturers to meet their projections."

The present norms need to be modified as they are unrelated to the realities existing in the Indian situation," he said.

The system of attributing risk-weightage to different types of advances also needs to be changed, the United Western Bank chief said.

Govt's role flayed: The role of government as the owner of the public sector banks came in for a lot of criticism in the conference. "The government as the owner of the nationalised banks should professionalise the management. Ignore seniority as a criterion for senior appointments. Go for only the capable people," Canara Bank chief Sridharan said.

He also hinted at a conflict arising out of governments current mode of partial privatisation of banks. "What is happening is not privatisation, but raising the capital adequacy ratio of nationalised banks through public issue. With the government holding 51 per cent stake in the banks, there is bound to be conflict between the interest of the government and the public share holders," he said.

The finance ministry, on its part, has called upon the public sector banks to gear themselves up to face total interest rate deregulation and the impending capital account convertibilty.

CM Vasudev, additional secretary, ministry of finance (banking), told bankers to get ready for further liberalisation and deregulation in the banking sector.

The statement assumes significance as bankers are expecting the Reserve Bank of India to free deposit rates across all maturities in the forthcoming busy season monetary and credit policy to be announced on October 21.

"Reforms are an ongoing process. So far, along with the liberaliaation and deregulation a good deal of transparency and operational efficiency has come into the banking sector", Vasudev said. According to him, the public sector banks need to strengthen themselves to face capital account convertiblity.

"Norms of prudential regulations and supervision will have to be adhered to," he said while urging banks to gear themselves up for the capital account convertiblity.

"In the second stage of financial sector reforms, banks can look forward to greater autonomy which will lead to higher productivity and introduction of technology. Autonomy should also lead to better industrial relations," Vasudev said. He urged the state-run banks to sharpen their skills in appraisal of credit risks, asset-liablity management, introduce universal banking and focus on human resource development. "These apart, the banks should be prepared for deregulated interest rate scenario," Vasudev said.

Reflecting on the first phase of financial sector reforms, the finance ministry official said that the reforms were introduced for better health of the banks.

"The reforms like introduction of prudential guidelines and stricter asset classification norms have led to greater transparency. The true portfolio of the banks are displayed in the balance sheet. After all, the efficiency in the financial sector reflects the efficiency of the real sector too," the official said.

Standard Chartered Bank's chief executive Martin Fish sounded a different note and drew the attention of the delegates to the eroding competitiveness of Indian companies. "We are beginning to get into a trap. Everyone is looking forward to the revival of financial sector for the problems of the economy," he said. Indian companies' competetiveness is being restricted by the lack of infrastructure. "Indian competitiveness is suffering from `infrastructure arthritis', Fish said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.