Nearly three years after the BJP-led government took power in Delhi, there has been more talk and less action in the matter of the mounting non-performing assets — NPAs, or bad loans — of public sector banks.
The issue is a serious one insofar as the strain it is putting on the nation’s banking system. The letter written by the recently created Banks Board Bureau (BBB) chairman Vinod Rai to the Centre, expressing concern over the steady rise in bad debt figures, and urging the government to expedite action, must be attended to with seriousness.
The grave scenario is reflected from the fact that the gross NPAs of public sector banks have risen from Rs5 lakh crore at the end of March last fiscal to Rs6 lakh crore by end of December. The bulk of these loans have gone into infrastructure sectors such as power, steel and roads, besides textiles.
Large corporate entities are the main defaulters, and much of these loans had been taken during the 2003-2008 period. Big companies cite reasons of global financial crisis and related issues for their inability to return the money.
While the banks are uncompromising when it comes to extraction of loans from private individuals and small scale businesses, the bigwigs are allowed to give explanations as a routine matter. Immediately after demonetisation, with a fresh flow of funds, many banks had announced waiver of big loans, citing bad debt.
Banks have systematically thrown caution to the winds and advanced loans to favourites without sufficient guarantee. Several bank officials have lost jobs but others continue to take calculated risks. Many top bankers promptly join big corporate houses — also big loan defaulters — immediately after retirement; bravely exposing alliances.
Clearly, rule violations are done under influences from the government level. The result is that what was once projected as a progressive measure — bank nationalisation that won then Prime Minister Indira Gandhi big public support — has ended up now leaving the banks totally mismanaged and in debt.
Banks are at breaking point, burdened with intentional bad debt. Governments have not done their job, banking institutions, including RBI, have misled people and much money has gone into the hands of corporate entities. These big businesses played with the money, diverted it through multiple channels and fattened themselves, while the nation stands to face the consequences.
A proposal advanced by the BBB, set up in June last, is to allow public sector entities to buy assets of companies that are not in a position to pay back the hefty loans to banks. The public sector enterprises themselves are ailing, and there is hardly any such entity that is not proving to be a white elephant.
Finance Minister Arun Jaitley has spoken of plans to set up more of overseeing panels on the lines of BBB, while addressing parliamentarians on the issue. He also spoke of setting up of the Insolvency and Bankruptcy Board of India (IBBI) under the insolvency and bankruptcy code of 2016.
The real question is the intentions behind these moves; whether they are coming from a place of concern for the people and ailing economy of the country or empathy for banks and especially big companies.
Allegations are that the Damodardass Modi government does not want to act against some big fish and is looking for a way out for them.