INDIA INC - RESPONSIBLE FOR RISING NPAs

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, you can pretty much get away with murder even though the loan default amount could be running in thousands of crores. Mallya is not paying salaries, he has defaulted on loan and interest payments on several occasions and is sitting on debt of over $1 billion. Yet, he is scot free, no property is attached and over the years, despite banks knowing that he was defaulting, he was given more loans; good money chasing bad money and ultimately now all threatens to become bad.

Banks are today staring hard at huge Non-performing Assets (NPAs) or bad loans. PNB shocked everyone when its NPA, as a percentage of total assets rose to 2.69% in current Q2 from 0.84% on YoY. Allahabad Bank and Lakshmi Vilas Bank were also amongst the ones to report a sharp rise in NPAs. Bad loans of the listed banks  has risen 33.46% (YoY) to over Rs.1 lakh crore during Q2FY13.  And in H1FY13, a total of 101 Corporate Debt Restructuring (CDR) cases , with a debt of Rs.64,000 crore have been registered.  35 banks have reported YoY rise in Gross NPAs. SBI alone accounts for almost one-third of gross NPA of all listed banks put together.  

RBI Deputy Governor has rightly said that the corporate sector is responsible for a major part of the rising bad loans causing inconveniences to the honest borrowers. He has rightly said, "NPA is a creation of the corporate sector ...you borrow from banks and you don't pay them in time. They become NPAs in the books of banks."

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?

This secrecy clause, protecting the names of defaulters should be first done away with. Transparency begins right from there. Yes, the list of names would include those of highly connected people, politicians. And that is the reason why we have this secrecy.