Non-performing Assets Blame Game of Banks in India

As on December 2017, the total non-performing assets (NPA) burden of banks in India had ballooned to Rs 7,23,513 crore, which was more than threefold what it was in June 2014 at Rs 2,24,542 crore. This figure has been furnished by the Reserve Bank to a national TV channel recently, based on data provided by banks to RBI. Since this has happened under the NDA’s watch, it provides ammunition to opposition parties. And how did the banks perform in recovering bad loans? Poorly, with the RBI revealing that in the 4-year period from April 2014 to March 2018, total recoveries amounted to just 1,77,931 crore. A raucous blame game has erupted over the past fortnight between NDA and UPA as to which dispensation is responsible for the huge NPA mess. It is primarily centred on a note sent to the Murli Manohar Joshi-led parliamentary panel by former RBI Governor Raghuram Rajan, in which has made certain damning revelations. Most of the bad loans originated in the period 2006-2008, he has pointed out — much to the delight of NDA because this was when UPA was ruling. But Mr Rajan has also informed he had sent to the Prime Minister’s Office a list of big defaulters who needed to be investigated, but no action was forthcoming. It is not clear whether he meant Manmohan Singh or Narendra Modi’s PMO, but that has not deterred the Congress or the BJP from accusing each other of shielding big fraudsters who took banks for a ride. Much has been made over fugitive liquor baron Vijay Mallya’s statement in London that he had met Finance Minister Arun Jaitley just before he left India; Mr Jaitley has countered by saying that a chat in the corridors of Rajya Sabha with the then Congress MP Mallya did not constitute a ‘meeting’. Be as it may, when in power, all political dispensations have been notoriously reluctant to name and shame, let alone take stern action, against big loan defaulters. People like Vijay Mallya and Nirav Modi have long been allowed to get their way with bank depositors’ money, the outcome of a “culture of leniency” in the words of Mr Rajan. It is part of the larger pernicious culture that allows the high and mighty to evade taxes and stash their money abroad, corner government contracts, seek undue favours and bend or break laws at will. “How important was malfeasance and corruption in the NPA problem? Undoubtedly, there was some, but it is hard to tell banker exuberance, incompetence, and corruption apart,” Mr Rajan has written in his note. He has flayed banks for “irrational exuberance” primarily during 2006-2008 when the country’s economy was booming, for extrapolating “past growth and performance to the future”, and public sector banks pursuing promoters without digging into their records (many of them unscrupulous but well connected) even as private banks were getting out of such financing. The lack of a stringent bankruptcy code at the time, and bankers’ fear that they will be harassed by investigating agencies if they flag a transaction as fraudulent, further compounded the problem. “Unfortunately, the system has been singularly ineffective in bringing even a single high profile fraudster to book. As a result fraud is not discouraged,” the former RBI Governor has lamented. While the country now has a tougher bankruptcy code, it turns out that defaulters are capitalising on its complicated legalistic character to file frivolous claims in court. The process to make the best of bad debts through restructuring is yet to pick up steam. What needs be kept in mind is that while lending has become a proportionately larger part of banking business in last two decades, credit appraisal remains sketchy and lending practices faulty. Mega loans to newer sectors like telecom and power have been turning bad, aggravating the NPA crisis. As for those who take loans, the virtual immunity given to big defaulters has also encouraged small borrowers to develop a cavalier attitude to loan servicing. Unless this mentality is not checked across the board, the NPA problem is likely to stay with us and in fact turn worse.