DISEASE OF NPAs – INDIA INC IS THE DANGEROUS 'DENGUE'

By Ruma Dubey

You dare miss one payment on your EMI?  It could be a payment of something as small as Rs.3000. Life could become hell!  Penalties, poor credit score and difficulty in getting loans the next time; the troubles will follow you into your grave and beyond.  That’s the story of our life; we the ‘mango’ people.

But if you are Vijay Mallya or Reddy of Deccan or the Jai Prakash group, you can pretty much get away with murder even though the loan default amount could be running in thousands of crores. Banks keep on lending money to big industrialists even when they are either struggling or defaulting on payments.

Banks have been staring hard at huge Non-performing Assets (NPAs) or bad loans for some time now and the clean-up seems to be getting out more worms from the rot which has set in. Take the latest case of Bank of India. For Q4FY16, its Gross NPA fell from 12.38% to 13.22% (QoQ) but YoY, it was up from 13.07%. Net NPA, on the other hand, was much better; it was at 6.90% v/s 7.09% (QoQ) v/s 7.79% (YoY). QoQ provisions more than doubled up from Rs.2302 crore to Rs.4736 crore. Slippages also doubled up to Rs.6915 crore from Rs.3210 crore.

PNB on the other hand, managed to improve its asset quality but its provisioning and slippages continues to rise. Gross NPA has come down from 13.7% to 12.53% (QoQ) and Net NPA also came down from 9.09% to 7.81%. Provisions for the quarter rose by a sharp 125% (QoQ) at Rs.5753 crore but YoY, it was down 42%. Slippages were up 28% at Rs.6896 crore.

RBL Bank too has slipped -  Gross NPA was at 1.2% of gross advances, up from 1.06% in Q3 and Net NPA also increased from 0.52% to 0.64%. Sequentially, provisions have gone up almost three times from Rs.36 crore to Rs.82 crore and YoY, up from Rs.37 crore. Indian Bank’s Gross NPA declined 22 bps (QoQ) to 7.47% while Net NPA fell 37 bps to 4.39%. Provisions rose 49% sequentially. Karnataka Bank’s Gross NPA rose sharply from 3.64% to 4.30% (QoQ) and Net NPA was up from 2.63% to 2.99%.

UCO Bank, IDBI Bank, Bank of Maharashtra, Indian Overseas Bank, Central Bank of India have literally made history when it comes to bad loans.

The private sector banks till now had adopted a “greater than thou” attitude but Yes Bank shocked one and all – both with the NPAs that it declared and what did not declare. The fifth largest private sector bank showed a major fall in its asset quality for Q4FY17. Its Gross NPA jumped up to 1.56% from 0.85% (QoQ) and Net NPA rose from 0.29% to 0.81%. It does not end there – its provisions for bad loans rose almost three times to Rs.310 crore.

Axis Bank asset quality also took a hit. Gross NPA rose from 4.17% to 5.22% (QoQ) and Net NPA rose from 2.02% to 2.18%.

Banks are stated to be sitting on Gross NPAs totaling over Rs.7 lakh crore as at end of FY17, up 25% and Net NPAs have jumped up over 58%.  McKinsey & Co. in a May 17 report said that the total stressed assets of Indian banks, including restructured loans, have now outstripped the combined net worth of the sector. The consulting firm pegged stressed assets at Rs 9.6 lakh crore compared to sector’s net worth of Rs 9.24 lakh crore.

Aren’t these facts all pointing towards the truth that the corporate sector is indeed responsible for a major part of the rising bad loans causing inconveniences to the honest borrowers. Yes, NPA is a creation of the corporate sector where they borrow and do not pay on time.

If you and me go to the bank and ask for a loan of Rs.10 crore, from PSU banks, what is the likelihood of getting it? Zero or maybe roughly 4-5% of the teeming 1 billion populations might be able to get. And these will be individuals who would be well connected and already rich. If they default? Well, the same connections help them get another loan or get the loan restructured. So basically, banks do not have the courage to bring such fraudsters to task as they fear trouble from these ‘connections’. So does it all, ultimately boil down to being well connected and you can get away with anything?

So why do we have these hypocrisy in banking? While a small individual, for a smaller loan, is punished hard and long, the bigger fraudsters are not only allowed to default, but they are granted more loans despite a pathetic credit history. Forget arresting, their personal properties are not ever attached. And we cannot know the names of the defaulters because RBI has refused to divulge the names of the defaulters against whom no suits have been filed, citing secrecy clauses. And these corporate honchos have today burdened the entire banking system and made healthy banks into debt holes. Aren’t they economic terrorists’?

Bad loans cannot be blamed entirely on high interest rates and lower economic growth. Banks are to be blamed because when it comes to big companies, they have no verification process of end use of the funds, poor assessment and a meaningless recovery process. Banks, as per the rule book, can get a representation on the Board of the borrower firm but how many banks have actually exercised that rule?