Public sector banks are soft targets
The truth about the total stressed asset of the state-run public sector banks may never be known. Rating agency ICRA estimates for the first half of this financial year put banks’ gross stressed assets at Rs.9 lakh crore. If they are wholly reliable, business gamesman Vijay Mallya, accused of payment default to the tune of Rs.9,000 crore, may account for only one percent of the gross bad debts of the banking sector. Other official estimates of the Indian banking industry’s bad debts vary from Rs. 4 lakh to Rs. 8 lakh crore. The question is: why are those banks not moving against other “wilful” defaulters to attach their assets and book those, who used fraudulent means to overstate the value of mortgaged assets or even pledged non-existent assets? How dependable are annual reports of bank auditors? What is the responsibility of the bank management for “creation” of large non-refundable debts to those dubious businessmen?
Apart from those loans that have turned sour or “sticky”, many such greedy business barons made “fortune” of their own otherwise financially stressed companies by making government financial institutions participate in their share issues lifting large stocks at highly inflated prices. Mallya appears to be just one of them. What did the securities watchdog, SEBI, and the government do to prevent such pre-issue market manipulation and discourage state-owned institutions from buying shares at inflated prices? Large real estate companies are among several others who have robbed state-owned financial institutions of millions of crores of rupees by making them buy their stocks at rigged prices. Those entrepreneurs are known to have strong links with persons in the corridors of power, including politicians, their family members, bureaucrats, bankers, and institutions. A year-long stock market boom since Narendra Modi took charge of the Union government as the Prime Minister did little to lift the face of those nearly junk shares. These losses can’t ever be recovered as they are in the form of ordinary shares and the owners or management of those public limited companies are not liable for such losses.
Why are Mallya’s overseas asset transactions being examined so late now by the Enforcement Directorate when the first major one was reported way back in the mid-1980s involving him with the late NRI tycoon Manohar Rajaram Chhabria in jointly taking over the overseas holding of India’s largest liquor company, Shaw Wallace? Why no one in the government or, more specifically, in enforcement agencies in the Finance Ministry raised eyebrows when this braggart business baron, a Kolkata La Mart alumnus, flaunted to the media his wealth, race horses, his aircraft, lavish yacht, own island off Spain, massive property in the UK, etc? Did anyone in the government scrutinise his official statement of material belongings filed for Rajya Sabha nomination?
The fact is Mallya is just one of several habitual bank defaulters, who like all others in the fraternity of rogue Indian business gamesmen have chosen public sector banks for an easy prey using their high-level contacts in the government, political circles and regulatory agencies, including SEBI. Thanks to the cumulative contribution of these rogue Indian bank defaulters, for every Rs 100 parked in shares of public sector banks, investors carry the burden of Rs 150 as bad loans, which have cumulatively ballooned to Rs 4 lakh crore or 1.5 times the market value of these lenders. In comparison, bad loans of private sector banks are said to be just about 6.6 percent of their total valuation. It is the RBI deadline of March 2017 for banks to clean up their balance sheets that may be suddenly forcing the banks to promptly disclose NPAs, take remedial measures and also make adequate provisions in their financial statements. The banks have reportedly begun complying with effect from their latest set of financial results, which are for the quarter ended December 31, 2015. According to RBI norms, an asset becomes non-performing when it ceases to generate income for a bank. The latter is required to declare a loan as NPA which remains overdue for more than 90 days.
Banks are believed to be creaking under the weight of large corporate loans that are either defaulted on interest payments or are on the verge of default. The vulnerable loans of the banking system, for the half year-ended September, stood at over Rs 9 lakh crore, about Rs 2 lakh crore more than the corresponding period last year, according to the data collated by ICRA. The banks’ stressed assets include bad loans, refinanced loans and loans whose dates of repayment have been extended (restructured loans). Long-term loans taken by companies in the power, real estate, aviation, commodities and iron and steel sectors are among the prime defaulters.
Like public sector banks and financial institutions, the government too has been a soft target for dishonest businessmen. Playing in their hands, often willfully or inexplicably, the government run with taxpayers’ funds is losing lakhs of crores of rupees out of tax and levy defaults by powerful business manipulators. The latest CAG report blamed the department of telecom for lack of monitoring of the financial operations of at least six private telcos – Airtel, Tata, Reliance, Idea, Vodafone and Aircel – understating revenue by over Rs. 46,000 crore in just three years from 2006-7 to 2009-10 during the UPA rule and under Sonia Gandhi as the UPA chairperson. The government suffered revenue losses worth close to Rs.124.9 billion. Like these operators, Mallya’s Kingfisher had duped the government to the extent of Rs.1.15 billion on account of service tax collected from passengers but not paid to the government. Nothing really happens to the likes of Mallya, who even manage strong political support to get elected to Parliament.
It will be wrong to begin or end the debate on fleecing the public sector banks, share market and the government with honourable Rajya Sabha member Mallya’s long grounded Kingfisher Airlines alone. Ideally, the case should help the Narendra Modi government try seriously to crack the unholy business-bureaucracy-political nexus and get into the depth of such relationships to improve the country’s global image as a non-partisan state to do business. India’s 76th ranking in last year’s global corruption index with the watchdog Transparency International calling graft a global “blight” has to be improved.
(The author is a senior commentator on economic and political affairs. Views expressed are strictly personal)