As the non-performing assets of public sector banks pile up, the Government must strike hard and change the laws so that all those who cheat the state, lose their assets. Wilful defaulters must be severely punished
Economists, bankers and Governments have a euphemism for bank losses. They use the term ‘non-performing assets’. Perhaps they believe that the more garbled the language the less the people will understand. According to media reports, NPAs stood at Rs1.74 lakh crore at the end of September 2015. No asset performs by itself; the key is with those who handle money in the form of liquid assets.
Net bad assets or losses make up for a third of the net worth of Government banks. In other words, if banks were to fully provide for all their bad debts, it would wipe out 33 per cent of their paid-up capital plus reserves and surplus.
The Reserve Bank of India has disclosed that as many as 29 public sector banks wrote off a combined Rs1.14 lakh crore of bad debt between 2013 and 2015. This is more than one-third of the total gross non-performing assets or losses of public sector banks which is pegged at Rs3.06 lakh crore. Worse still, for 16 of the 25 public sector banks, for whom data is available, this ratio is more than 33 per cent.
Government banks adopt many different tricks to reduce their losses by writing off their losses or assets or by restructuring finances. Sometimes, bank write-offs are more than State budgets. The highest bank write off till recently stands at Rs1.14 lakh crore.
Also, it is not the poor farmers or the middle class who are defaulting on their loans. It’s the country’s super-rich businessmen, well suited and booted, living in luxury palatial houses, with loan amounts of over one crore rupees who account for a staggering 73 per cent of the unpaid loans to banks. What is worse is that just the top 30 cases of default account for Rs1.21 lakh crore, which is almost 40 per cent of the NPAs.
A colleague in Bangalore, who now heads a State financial corporation, said that his job was tough, as he had to deal with all kinds of recommendations from the powers-that-be on loan decisions. He said he would decline most of them, as the requests would not come in writing.
His office was on the seventh floor. Once in a while, he would look out, down at the road. Once a well-dressed person in an expensive car came to see him to seek more loans, so that he could ostensibly revive his tottering business. He had already taken a couple of crore of rupees in loans earlier but hadn’t returned a paisa.
This writer’s friend did not even offer him a chair to sit. The industrialist was offended and pulled up a chair anyway. The officer told him that he was busy and would have leave for a meeting in a few minutes. The industrialist got to the point and said that he needed a multi-crore rupee loan.
The officer said that if he was as poor as he claimed, he should have sold his expensive car and used public transport. He also said that he wouldn’t sanction a penny in loans and, instead, would move for seizure of the industrialist's assets.
The industrialist left and went to his politician friend. The latter declined to help, saying that the loan officer may even go so far as to lodge a police complaint. The officer was, of course, transferred in a couple of months but by then, he had managed to recover 50 per cent of the losses.
The Union Government’s public sector banks are being ripped off. The bigger the loanee, the bigger the write-off. A former Deputy Governor of the Reserve Bank of India said: “Technical write-offs by Indian banks are inequitable and should be stopped. It is a big scam. Small loans are rarely written off; most of them are big loans”.
The involvement of the top brass in this can be seen from the fact that the write-off instruction comes from the head office. “Technical or prudential write-off is the amount of non-performing loans which are outstanding in the books of the branches, but have been written off (fully or partially) at the head office level”, the former Deputy Governor mentioned.
According to the All India Banking Employees Association, there are 50 big loanees who have been favoured with loans that vary between Rs300 crore and Rs7,000 crore. For a poor man, to get loan for a few thousand rupees is a super-human task. If the Government wants, it can end this racket of doling out the common man’s money.
loans should only be given against solid security and foolproof documentation. It should also only be sanctioned to an individual (not to bogus companies). This increases accountability and personal responsibility. Also, the person applying for the loan should pledge his property to the bank. It should be a criminal offence to default. Additionally, the person should be allowed to take a loan from one bank only. Currently, loanees can take loans from different banks at the same time.
For non-recoverable loans, the concerned committee or approving authority should be held responsible and his/her assets, along with the assets of the defaulter, should be confiscated. If the chief officer of a bank approves a write-off, he or she should be prosecuted for neglect of duty, bank loss and for not exercising due diligence.
loans, especially big loans, are sanctioned by a credit approval committee, usually comprising the chairman, executive directors and the general managers of a bank. These committees can approve credit proposals of up to Rs400 crore in the case of Category A banks and Rs250 crore in the case of other PSU banks.
If the loan proposal is above this limit, it has to be vetted by the bank board committee. Often, the board clears the proposal put across by the management without much discussion. Due diligence is missing. No action has been taken against any bank board member for being a collusive party.
Here the doctor is the same as the patient. It is the tax-payer who is paying for the loss. Why should defaulting loanees not be treated like other criminalsIJ The Government can even set up special courts for this purpose. Merely lamenting that such huge NPAs is not an acceptable situation to the Government, even though the bad loans keep piling up, only makes the Government a laughing stock in the eyes of those who understand trickery. It is time for the Government to strike hard and change the laws, so that all those who cheat the state lose their assets. Defaulters must be punished severely.