Santosh Kumar Mohapatra
While people were grappling with problems caused by demonetisation, State Bank of India wrote off loans amounting Rs7,016 crore owed by 63 wilful defaulters with Mallya topping the list with Rs1,200 crore.
The move revealed the hypocrisy of the NDA government at its worst. The government, which takes pride in fighting black money, should not protect big loan defaulters.
While the dues of 63 accounts have been written off fully, those of 31 have been partially written off while six accounts have been tagged as NPAs. Some prominent defaulters in the list are KS Oil (Rs596 crore), Surya Pharmaceuticals (Rs526 crore), GET Power (Rs400 crore) and Sai Infosystems (Rs376 crore). The decision to write off such huge amounts has been severely criticised by economists and opposition party leaders.
But Finance Minister Arun Jaitley defended the move in the Rajya Sabha stating that the loans were not really waived and that banks will continue to pursue their recovery. The question is if it were just a change in accounting entry, why don’t banks write off all bad loans and separately continue recovery? Banks write off NPAs to clean up their balance sheets and to achieve taxation efficiency.
The income they from interest on loans is taxed. But if the loanee defaults on repayment banks generate lower income and thus have to pay lesser taxes as the loan amount remains under “asset” in its books. Banks, therefore, write off NPAs to reduce tax liability.
What is perplexing here is that the quantum of loans written off and NPAs is big. Banks reported close to 14 per cent of gross advances, or more than Rs8 lakh crore of their assets, as stressed and Rs5,94,929 crore as Gross Non Performing Assets (GNPAs) as of March. GNPAs of state-owned banks amounted to Rs4.77 lakh crore, or 9.32 per cent of the total advances.
RBI estimates this ratio may rise to 10.10 per cent by March next. The alarming rise in bad debts between 2013 and 2015 at 60 per cent compared with 4 per cent between 2004 and 2013 is a cause for serious concern.
Public sector banks have written off about Rs1.14 lakh crore bad debts between 2013 and 2015. This is half of what was written off over the last 9 years between 2004 and 2013. Write-off on loans rose sharply in recent years, with state-owned banks writing off the highest-ever of Rs59,547 crore in the year ended March 2016. Burdened by high NPAs and hefty write-off of bad loans, state-owned banks reported record losses of Rs23,704 crore in the fourth quarter of 2015-16.
Former RBI Governor Raghuram Rajan, who waged a war on bad loans, had ruffled the feathers of the industry for trying to get banks to clean up their balance sheets. Though the banks were initially reluctant, they implemented the clean up exercise from December 2015.
But with exit of Rajan, the new governor Urjit Patel was hesitant to continue the struggle against bad loans, perhaps under pressure from corporate honchos or the finance ministry.
The conviction rate of wilful defaulters under this government was 1.14 per cent in 2015-16, even lower than 1.45 per cent in 2014-15.
If the government is serious about recovering these loans, why are they not seizing property of the defaulters? Write-offs affect other depositors adversely. Banks with a lot of NPAs tend to have low deposit rates and keep lending rates high to recover losses. Hence, very rightly, former RBI deputy governor KC Chakrabarty has dubbed write-off by banks as a “scam” and “inequitable”.
The author is an Orissa-based financial columnist.
