EDITORIAL

Bad Corporate Loans

When it comes to big corporate loan defaulters, banks have always treated them with kid gloves. Such defaulters are rarely med and shamed publicly, because that will hurt business sentiment — so goes the argument. The wheels of economy cannot keep turning without entrepreneurs taking loans to set up businesses and creating jobs, so banks need to forbear if some of them fail to return loans. However, the problem has become too big for banks to sit upon and pretend all is well. In turn, the government has had to change its strategy, what with mostly public sector banks groaning under unsustaible non-performing assets (NPA) burdens. The latest Reserve Bank figures alysed by a leading tiol daily have shown that corporates made up as much as 73 percent of bad loans the public sector banks were saddled with by March 31, 2017; in rupee terms, PSU banks had a gross NPA burden totalling Rs 6.41 lakh crore, of which Rs 4.7 lakh crore was owed by corporates. Besides, big corporate groups owed more — as much as Rs 5.27 lakh crore by December 31 last year. According to experts, corporate groups failed to return loans because their businesses went kaput or they committed fraud, or because the bankers did not assess their risk potential properly. In comparison, loans to the business services and agriculture sectors accounted for 13.21 percent and 8.89 percent. As for retail loans like home loans, car loans and persol loans advanced, only 3.71 percent (Rs 23,795 crore) had turned bad. Overall, the dismal gross NPA picture has the government worried, because most of it is on the books of PSU banks. As on September 30 last year, this burden was Rs 7,33,974 crore for public sector banks, compared to Rs 1,02,808 crore for private banks. Last year, the government put together a Rs 2.11 lakh crore package to re-capitalise PSU banks, while drawing up a strategy to deal with the bad loan problem. Accordingly, the smaller PSU banks are sought to be protected by reducing their exposure to corporate loans and turning them into retail banks – these banks will advance retail loans in lieu of reliable assets, and carry out cost-cutting measures like shutting down unprofitable branches. Only large PSU banks like State Bank and Punjab tiol Bank will advance corporate loans. 

Over last couple of years, the Reserve Bank has been pushing banks to put their balance sheets in order by reducing NPA burdens. Lately, the RBI has withdrawn the bank mechanisms for debt restructuring. In line with the Insolvency and Bankruptcy Code (IBC), banks have now been directed to swiftly identify stressed loan accounts and implement resolution plans within definite timelines. Clearly, the stiffer RBI guidelines have been chalked up to prevent wilful bank defaults like Rs 9,000 crore default by Vijay Mallya’s Kingfisher group or the Rs 13,000 crore fraud perpetrated on PNB by the diamond merchant duo Nirav Modi and Mehul Choksi. With the country’s economy beginning to recover at last from the demonetisation shock treatment, the role of banks to ensure continued 7 per cent plus economic growth will be crucial in next few years. It is a pity that with big corporate groups hitherto hogging bank loans, bribing a section of corrupt officials and wilfully defaulting on repayment — the medium, small and micro enterprises (MSMEs) have been finding it hard to access bank credit. As reported in the Economic Survey this year, the big players maged to corner as much as 82.6 per cent of over Rs 26 lakh crore bank credit disbursed as on November 2017. At the best of times, small players could hope to access investment capital mainly from specialised fincial institutions; whenever they needed working capitals from banks, they had to be thoroughly prepared with their business plus revenue earning plan and supporting paperwork. Their efforts will likely meet with even less success in the coming days due to the turmoil in the banking sector. It remains to be seen whether and how the Union Fince Minister follows up on his budget promise this year to re-fince non-bank fince companies (NBFCs) that have emerged as saviours to small firms with much-needed credit support. 
 
Reviving Forensic Labs
The Gauhati High Court has pulled up the Assam government for the dismal conditions in the State Forensic Science Laboratory in Guwahati and the Regiol Forensic Science Laboratory in Jorhat. Dispur has been given six months to implement the recommendations of a three-member panel the High Court had constituted in 2016 after taking up a suo moto public interest litigation based on media reports. Recently at the Assembly, a standing committee report on the demand for grants by the State Home Department laid bare the manpower crunch and shortage of major chemicals and equipment in the State forensic lab in Kahilipara. When the HC panel members went visiting, they reportedly found key units woefully understaffed, basic instruments uvailable or in disrepair and chemicals not purchased for months on end. Their report has called for improving the functioning and infrastructure of both the forensic labs, filling up of posts lying vacant for long, and revamping the State Forensic Science Development Board, among others. What this makes abundantly clear is how low crime investigation has hitherto figured in Dispur’s scheme of things, obsessed as it has always been with law and order (read VIP security). Because the forensic labs were left crippled, key units like chemistry, toxicology, serology, D, drugs and rcotics, ballistics, and computer forensics have been uble to conduct tests. Police investigations into several hundreds of heinous crime cases have thus been stalled for months and years, effectively ending the chances of most of these cases from ever making it to the trial process in courts. It is ironic that while the APSC cash-for-job scam investigation is making headway due to forensic labs from across the country, those within Assam have been allowed to languish in utter neglect.