Name big defaulters too
Of late, public sector banks are being accused and abused almost daily by one government body or the other for running huge non-performing assets or bad loans although the accumulation of such large stricken loans has not taken place overnight — not certainly during the 34-month-old BJP-led government under Prime Minister Narendra Modi. Quizzically, the campaign is being orchestrated by the very owners of these banks, the government. On the face of it, this is unusual and also unnerving. Ministers, Reserve Bank officials, finance ministry, NITI Ayog, and the year-old Banks Board Bureau satraps have all joined the orchestra against 'bad banks' and 'bad loans'. Even a private banker, Uday Kotak, recently took part in the chorus voicing concern about public sector 'bad banks' and the amount required for their loan-loss provisioning. If the purpose of this unusual campaign by the government is to get those 'bad banks' merged with other better-managed ones, it is certainly an unwarranted exercise.
All public sector banks are majority state-owned, making the government equally responsible for their poor performance year after year. Their NPAs are known and grown over the years. What was the government doing for this long, except recapitalising them in small doses? If the merger of some 'bad banks' with better ones help, what is preventing the government from doing so since the latter is both the promoter and controlling shareholder of all these banks? Why is it not doing so even after the creation of the Banks Board Bureau, under the chairmanship of Vinod Rai, former Comptroller and Auditor General of India (CAG), over a year ago? The government does not need an alibi to restructure its enterprises to get the best operational result in the interest of all stakeholders, including other shareholders, depositors and creditors. The 'bad bank' publicity is self-injurious and creating a kind of panic among bank depositors, especially 'fixed' depositors in those high NPA-stricken banks, employees, small shareholders, and genuine creditors who are caught unaware of the government's 'hidden' agenda behind the loud campaign.
Ironically, those big defaulters with state-owned banks are getting emboldened daily in the hope that these banks will be forced to write off irrecoverable stricken assets and, possibly, as a result, they may get off the hook lightly. Other defaulters may be looking forward to fresh opportunity to go in for loan restructuring with banks on their own terms like long repayment schedules carrying low interest or no interest for initial years of debt engineering. As of September 30, 2016, the NPAs declared by various scheduled commercial banks stood at Rs 6,65,864 crore, the government told Rajya Sabha. It has now increased to Rs. 6.80 lakh crore.
The finance ministry figures put NPAs of the country's largest lender, State Bank of India at Rs 97,356 crore, followed by Punjab National Bank Rs. 54,640 crore and Bank of India Rs 44,040. Bank of Baroda has NPAs worth Rs 35,467 crore, Canara Bank Rs 31,466 crore, Indian Overseas Bank Rs 31,073 crore, Union Bank of India Rs 27,891 crore, IDBI Bank Rs 25,973 crore, Central Bank of India Rs 25,718 crore, Allahabad Bank Rs 18,852 crore, and Oriental Bank of Commerce Rs 18,383 crore. While most of these 'bad banks' will have to bite the bullet sooner or later and get prepared to merge with some half a dozen well-capitalised institutions, little is known about the background of the large defaulters and if their political and top bank management connections helped in manipulating loan proposals and project financial appraisal reports to secure large bank loans on the sly.
As NPAs of public sector banks soared to a staggering Rs 6.8 lakh crore, Public Accounts Committee (PAC) Chairman K V Thomas feels "naming and shaming" such corporate houses may help financial institutions get back at least a good part of their money. Out of the total NPAs of PSU banks, a whopping 70 per cent are inflicted by big corporate houses. Thomas said just one per cent of it constitutes loans to farmers. "In the case of farmers or small traders, banks act strong, and they go to their houses to recover money. They even get published their names and photographs in newspapers. But when it comes to corporate houses, they don't reveal the names. We intend to give names of such big defaulters who owe money to banks in our reports to be submitted in Lok Sabha before the end of the budget session," he told the media.
The government is using the taxpayers' money to inject fresh funds to help banks meet the NPA ratio under the Basel norms. According to new Basel-III norms, which kick in from March 2019, Indian banks need to maintain a minimum capital adequacy ratio (CAR) of 9 per cent, in addition to a capital conservation buffer, which would be in the form of common equity at 2.5 per cent of the risk-weighted assets. The 2016-17 budget earmarked only Rs, 25,000 crores towards bank capitalisation. The fund was a pittance. Banks were asked to raise capital from the public.
Currently, there are 27 public sector banks, out of which 19 are nationalised banks and 6 are SBI and its associate banks. The rest two are IDBI Bank and Bharatiya Mahila Bank, categorised as 'other public sector banks.' The associate banks of SBI and Mahila Bank officially merged with SBI on April 1. The consolidation exercise among public sector banks may not be an easy one with unions and employees voicing their serious concerns. The public sectors banks have over 800,000 employees. The merger of these banks into five or six entities will render at least 100,000 of them 'surplus'. The unions have threatened mass action against the merger that would send a significant number of the employees jobless.
The Basel-III requirement and the pressure from the national banks unions may have driven the government to take the path of launching a strong public campaign against public sector 'bad banks' before effecting their merger with better-looking entities well before BJP goes for the next national election in 2019. The action could prove to be a big gamble for the party — maybe, much bigger than demonetisation of high-value currencies last November. Much will depend on how subtly the government handles the issue and how the employees' unions at the national level react.
(The views expressed are strictly personal.)