NPA & BLOCKCHAIN Solution

Bank credit is an important source of finance for the industries. Total bank credit has grown from Rupees 5.47 billion in March 1951 to Rupees 78,414.66 billion in March 2017. Bank credit to industry (medium and large) has increased from Rupees 82.69 billion in 1980 to Rupees 23,102.93 billion in 2017. In this scenario of large amount of credit extended by banks, non-performing assets (NPA) could pose a big threat to the macro-economic stability of the Indian economy. NPA is any asset of a bank which is not producing any income for a period of 90 days. Bad loans or non-performing assets were 9% of total loans of all Indian banks in September 2016. But NPA alone doesn’t tell the whole story of bad asset quality of loans given by banks. Some of the loans are restructured by banks by giving a further opportunity to the borrower to avoid their default. This opportunity is in the form of an extended time period for repayment and a reduced interest rate or such soft conditions.

We can’t blame only bad practice of loan approval, some other reasons are there. Willful defaulters, loan frauds, corruption makes it big. Most of these non-performing loans are manufacturing and infrastructure sector. Repaying the debt directly related to companies turnover and turnover depends on many factors. In recent years India showing a growth in core sectors but it’s a ‘jobless growth’. Country’s economic condition also played an important role. Recent development on India and its neighboring countries, demonetization, CPEC, BREXIT, COP21 on climate change also fueled the situation. Recent trends on farmer loan waive-off burdens bank day-by-day. Financial institutes are busy with solving twin balance sheet problem. Insolvency and bankruptcy agents trying to find a way out but sometimes loan amount is so high that buyers are loosing interest. Recently Indian government trying to sell air India, but no one willing to buy because of Rs 52,000 crore debt.

An analysis of the present situation brings us to the point that the problem is multi-faceted and has roots in economic slowdown; deteriorating business climate in India; shortages in the legal system; and the operational shortcoming of the banks. Therefore, it has to be dealt at multiple levels. The government can’t be expected to rescue the state-run banks with tax-payer’s money every time they fall into a crisis. But, the kind of attention with which this problem has been received by policymakers and bankers alike is a big ray of hope. Instead of finding solution within legacy system, banks should adopt the new age solutions and robust planning for such kind of situation. It’s always better to act rather than react.

Though we always love to discuss on problems, let’s talk about solution. Blockchain technology has tremendous opportunity on solving this issue. Lots of similar database exist across organizations. If we can bring them under one umbrella then the issue can be resolved. Supplier, logistic company, producer, retailer, insurance company, bank, audit agent all are maintaining individual record. At last financial institute, tax department puzzled with these records. Individual records also create opportunity to fraudulent activity. If we can create a shared database where every transaction will be updated and authenticated by relevant participants; there will be appropriate access control, transactions are secure and verifiable, then fraudulent activity can be reduced. IBM Blockchain provides many features including smart contact having digitally signed. Only business network will decide who will endorse the transaction, which will eliminate possibility of conflict and ghost transactions. Blockchain can help bank on KYC of a customer, knowing credit history of a borrower, current financial transactions or loans of an loan applicant or borrower, business transactions of borrower to know if approved loan amount is spending on appropriate purpose .Through IBM cognitive solution, bank can predict potential loan defaulter and take preventive measures before its too late. The shared ledger (Hyperledger) will help to bring financial transparency, finding potential business areas to reduce current account deficit, help insolvency and bankruptcy agency to find perfect buyer or solution. In fact it can help each and every sector on expanding their business. Though govt started help centre for soil test, farming advice etc but still we are facing crop loss, reduced production. So farmers are moving towards sowing cash crop and sometimes trapped in cobweb phenomenon. Through IBM Watson services we can provide effective solutions of these issues so that loan wave-off practice can be minimized and farmers can get greater return of their produce.