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Let’s rid India of bank freeloaders

It was after years of abusing the public banking system that UCO Bank pronounced Vijay Mallya-owned Kingfisher Airlines as a willful defaulter last month. Now, with Reserve Bank of India Governor Raghuram Rajan upping the ante and calling them ‘freeloaders’, whose ‘riskless capitalism’ has cost a lot to the government exchequer, it is time to queer the pitch on such willful defaulters.

As Rajan has clearly pointed out, such entities are responsible for making banks’ credit profile unhealthy, as well as push up the non-performing assets burden on one hand and the ratio of non-recoverable bad loan on the other. Given that a number of high-profile corporate borrowers, chiefly the Mallya-owned KFA but also a number of others, have given state-run banks a hard time with their loans turning bad, it is baffling that instead of publicly chastising them by confiscating their properties upon non-payment of loans, Indian media as well as cheerleaders of free market have only softened the blow for them, championing these defaulters as real risktakers. The reality is, however, far from this.

Big corporations with enormous borrowing limits have only bogged down the PSU banks by not respecting the sanctity of the debt contract, thereby choking the government-owned banks’ ability to lend to small and medium-sized borrowers whose very subsistence depend on it. Moreover, large-scale misuse by corporate borrowers puts the very premise of capital flow at risk, since huge amounts of capital is bottled up in the clogged circuits of corporations unwilling to pay back to the banks.

However, neither does this affect the life-style or private properties owned by the defaulters, nor are they subjected to rigours of law and made to pay back the thousands of crores. In fact, corporate debt restructuring allows for reconfiguring such bad loans and waiving them off, transferring the burden of revenue deficit to the general public, already assailed by rising food and fuel costs. Sweet deals between government-owned banks and favoured corporations, like SBI’s sanctioning Rs 7,000 crore to Adani Group to develop questionable coal blocks in Australia is a classic case of turning a bad eye to freeloaders.       

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