Banks are aware that their lending strategy is counter-productive, but feel they can do nothing about it. If under the Reserve Bank'sasset-recognition norms, an industrial loan turns into an NPA, they promptly freeze loans to the borrower. Worse, if interest on a loan is not paid for a couple of quarters -- that is what makes a loan NPA by definition -- the freeze is followed almost automatically by court proceedings for recovery of outstandings. The link between NPA, loan freeze and recovery drives borrowers to the BIFR to get a temporary reprieve from winding-up proceedings. The key reason for rising BIFR cases is not that industrial units are rapidly going belly-up, but banking persecution. The result is incalculable macro-economic damage. Yet, given a chance, NPAs may recover. An industrial unit can be turned round with the support of a bank. There will be some cases of backing the wrong horses, but overall, turnaround cases will make the risk commercially worthwhile. But banks remain indifferent to the prospect, thanks to the CBI, which has sweeping powers to haul bank officials over the coals.

Fear of vigilance hounds hasstrengthened the link between NPA and legal recovery proceedings. This must be broken if banks are to play a constructive role. Banks must be moved out of the shadow of the CBI. To focus on turnaround cases, banks need to develop strong internal supervision and follow-up. The top management, which is accountable to the Reserve Bank, must be free to judge why certain decisions have not paid off. The CBI, which assumes ulterior motive -- it cannot do otherwise -- must get off their backs. Let the management decide which cases require CBI investigation and which are best left alone by it.