Dhurjati Mukherjee
The Reserve Bank of India Deputy Governor K C Chakrabarty recently made a significant presentation, wherein he pointed out that the banks had sacrificed around Rs one lakh crore by writing off bad loans to corporates which is much higher than Finance Minister P Chidambaram’s farm loan waiver in 2008. Recall that the farm loan waiver, which was criticized by pro-industry analysts, was only around Rs 60,000 crores.
At the annual bankers’ conference, Chakrabarty had stated: “In the last 13 years, banks have written off Rs 1 lakh crore and 95 per cent of these are bad loans. Everyone talks of the farm loan write-off but it is the medium and large enterprises segment that has a 50 per cent share in NPAs (non performing assets)”.
The RBI official regretted the increasing NPAs of banks and the technical write-offs resorted to by them. “Restructuring of loans with retrospective effect has credit quality in banks”, Chakrabarty observed. In this connection, it may be mentioned that, as per RBI sources, banks added Rs 4.95 lakh crores in their bad debts between 2007 and 2013.
During the same period, they reduced NPAs to the extent of Rs 3.50 lakh crores. This was mainly because loans worth Rs 1.40 lakh crores were written off, while another Rs 90,887 crores were upgraded to repaying loans status and Rs 1.18 lakh crores were recovered.
The Deputy Governor was squarely critical of large loans to big corporate houses. According to him, between 2007 and 2013, credit to ten large corporate groups has more than doubled. “We have seen that whenever credit growth has been higher, the NPAs are also higher”, he elaborated.
Lately, the Finance Minister blamed ‘tardy’ State-run banks for the high level of NPAs and noted that their boards and not the Government should be held responsible. “If the banks’ boards cannot perform their duty, blame should rest with the boards,” Chidambaram observed at the 20th anniversary of the National Stock Exchange.
Statistics reveal that the United Bank of India (UBI) has an NPA of over 7 per cent while the State Bank of India has 5 per cent bad assets. But though the Minister said the RBI and the Government had taken serious note of the issue, no specific measure towards aggressive recovery was enumerated by him. It is, however, understood that the Government is contemplating taking some action or doing something to tackle the NPAs, which totals around Rs 1.70 lakh crores presently.
It is quite apparent that India has been alarmed by the rise in soured loans, especially of the State lenders (nationalized banks) that dominate the banking system. Tackling the problem of wilful defaults is difficult in a country that lacks a bankruptcy law and has notoriously clogged courts where getting justice takes a very long time, if not forever.
Stressed loans of banks are estimated to be at least 10 per cent of all loans. Fitch Ratings expects this to rise to 15 per cent by March 2016 (or within another two years.) The bad loan ratio of 5 per cent for State banks is more than double that of private sector lenders.
Let us take the case of Kingfisher Airlines which has closed down for quite some time now.
The controlling shareholder, Vijay Mallya, a liquor baron, former Member of Parliament and an enormously rich man with a flamboyant lifestyle. He was unsuccessful in his efforts to revive the airlines and find new investors for Kingfisher but he openly stated that it is the Company and not him personally that owes the money to the banks.
It is generally agreed that Mallya was not interested to revive the airlines as he had borrowed an extraordinarily high amount from a consortium of banks, specially the State Bank of India. The question then remains is what action has been taken by the banks to recover the amount? At best there has been a move to take possession of his “Kingfisher House” property in Mumbai to realize part of the debts, which is a pittance, due to them from the airlines. But it has got embroiled in claims made also by the Income Tax department. At the same time, the question is why were the loans sanctioned without a proper mortgage and assessment of his huge assets?
Though it is understood that the Central Bureau of Investigation (CBI) was scrutinizing the 30 biggest defaulters of Indian banks, not much headway is in sight. The so-called fast track courts typically take five years to resolve a bad debt and lenders go to any length to defer the process by various means by using political sources to get leeway.
According to the chairperson of a leading nationalized bank, most companies are quite big and when it is known that the recovery process has been initiated, they transfer the assets of the Company in the names of friends and/or relatives or get stay orders from courts by hook or crook.
Moreover, State lenders are constrained from moving quickly to pursue bad loans due to bureaucratic hurdles and a culture where it can be considered safer not to take a decision on recovery fearing political intervention.
While a certain section of industrialists are interested to siphon off bank loans, this should not deter the financial institutions to extend help and support to the industry, specially the micro and small enterprises. In fact, a task force on Micro, Small and Medium Enterprises (MSMEs) set up by the Prime Minister, has recommended a 20 per cent year-on-year growth in credit to this sector.
At a recent meeting, Union Minister of MSMEs K H Muniyappa stated that the banks would be directed to increase lending to these enterprises. Earlier at an ASSOCHAM meeting in New Delhi the Minister informed that he expected the share of medium and small units in total export to go up to 50 per cent for which the banks have to come forward and lend on easy terms.
Thus, while lending to the deserving must be encouraged for enterprises to grow – and help in industrial rejuvenation – the banks would too need to be judicious in ensuring that the money would be returned. Undeniably, the recovery process has to be strengthened and a fast mechanism evolved for which both the RBI and the Finance Ministry has a critical role to play. Also there is need to publish in annual reports of banks the names of big corporate borrowers as well as ensure strict measures taken to mortgage their property to pay off their debts. Some system must be put in place. -INFA