NPAs Caused By the Richest
Economists, bankers and the government has a euphemism, to call the bank losses the Non-Performing Assets (NPA) following the principle that more garbled the language, less people would understand. According to a media report, the bank losses or net bad assets stood at Rs.1.74 lakh crore at the end of September 2015. No asset performs by itself, but those who handle the money in the form of liquid assets Net bad assets or losses of government banks area third of their net worth. 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 29 public sector banks wrote off a combined Rs 1.14 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 Rs 3.06 crore for public sector banks. 16 out of 25 public sector banks, for whom data is available, this ratio is more than 33 per cent The average for private sector banks is 4.9 per cent.
Government banks adopt tricks to reduce their losses by writing off their losses, or writing off the assets or by restructuring finances. The highest bank write-off, of bad loans, till recently stands at 1.14 lakh crore, much more than the budget of majority of states in our country.
A shocking fact is that it is not the poor farmers or the middle class who are defaulting on their loans. It’s the country’s super rich, businessmen and the upper middle class with loan amounts of over Rs 1 crore 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 Rs 1.21 lakh crore, which is almost 40 per cent of the Non-Performing Assets (NPAs) or bad and dead loans in banks. The upper middle class, who usually takes loans of over Rs 1 crore, accounts for 33 per cent of the total NPAs.
Once I was talking to a colleague, in Bangalore, now called Bengaluru who was heading a State Financial Corporation. He said that his job was tough, as all kinds of recommendations to advance loans, from the powers that be, would come, which he would decline, as nothing would come in writing. His office was on the 7th floor. Once in a while, he would look at the road. Once a very well-dressed person, in the top category of car, came to see him with the objective of getting more loans, so that, ostensibly, he could revive his tottering industry. He had already taken a couple of crore, without returning a penny or a paisa.
My friend did not offer him a chair to sit down. The industrialist felt offended and pulled up a chair to sit own. My friend told him that he was busy and would leave for a meeting in a few minutes. He knew that he was the biggest loanee defaulter. The visitor said that he wanted an X number of crore.
My friend said that if he was as poor as he claimed, then instead of the Mercedes car and the first-class dress, he should have come on foot or by a bus or at the best, in a rickshaw and tattered clothes. He said that not a penny would be given and he would move for seizure of his industry, a string of flats and vehicles. The industrialist went back to his political friend said that the head of the Financial Corporation and cannot even lodge a police complaint against the businessman.
Of course, he was transferred in a couple of months, but had managed to recover 50 per cent of the dead losses. So far as the Central government’s Public sector banks are concerned, it is a rip-off. The bigger the loanee, the bigger the write-off and no coercive measure.
A former Reserve Bank Deputy Governor says, “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,” How the top brass is concerned can be seen from 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. According to the All India Banking Employees Association, there are 50 biggest loanees, who have been favoured with loans from 300 crore to Rs. 7000 crore.
For a poor man to get loan for a few thousands is a super human task. If the government wants this racket which doles out the common man’s money, then, loan should be given against solid security and fool-proof documentation to an individual and not to bogus companies and the person applying for it should pledge his property to the bank. It should be a criminal offence and only one bank should be his lender bank. For non-recoverable loans, the committee or the approving authority concerned should be held responsible and all their assets along with the assets of the loanees should be confiscated. The loanees should be given money only by one bank and not a number of banks, which is happening now. If the head office of a bank approves write-offs, then he should be prosecuted for neglect or duty, bank loss and not exercising due diligence.
Loans are sanctioned by a credit approval committee comprising the chairman, executive directors and the general managers of a bank. These committees can approve credit proposals up to Rs 400 crore in the case of category A banks and Rs 250 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 is taken against any board member for being a collusive party.
Here the doctor is the same as the patient. It is the taxpayer, who is paying the dead losses of the government banks. Why not treat the loanees such as other criminals like fraudsters and cheats and take such national loss seriously. The government can even set up special courts for this purpose. Harmless lamentations that such huge NPA or dead loss is not acceptable to the government would not solved the problem, as it keeps on happening ,which makes it a laughing stock in the eyes of those, who can understand the trickery. Honesty is never sitting aside. It is time for the government to strike hard and change the laws, so that all those, who cheat the government should lose all their property.
By Joginder Singh
( The writer is former Director, CBI)