Millennium Post

The great bank robbery

Bank robbery always makes big news. But, not when it is craftily conducted by clever corporates. Corporate robbery of banks even carries a fashionable nametag called ‘non-performing asset’. It refers to loans that have gone sour and are not recoverable. Banks simply write them off. Unlike other categories of bank thieves who, if caught, face prosecution under a host of sections and sub-sections of the Indian Penal Code, big-time corporate bank robbers mostly go scot-free although several of them are even known to be habitual loan defaulters.

Banks, mostly in the public sector, have restructured or written off loans worth over Rs 3 lakh crore to favour large loan defaulters in less than last two years of the UPA regime. The scale and depth of the recent loan write-offs and debt restructuring by banks have embarrassed even the union finance minister, Reserve Bank and Parliamentary standing committee on finance. Thanks to judicial protection received by those large corporate loan defaulters, stakeholders don’t even get to know the names of the concerned corporate promoters and their guarantors.

The rise of PSU bank NPAs, led by the State Bank of India, has been phenomenal since last financial year assuming almost a scandalous proportion seemingly vying with such mega scams as 2G and ‘Coalgate’ in terms of amounts involved and the number of high-profile business houses blowing up bank funds. According to Crisil, a top rating agency, banks’ gross NPAs this fiscal may grow by
Rs 1 trillion to Rs 4 trillion in March 2014. The amount is really big if compared with RBI’s estimate of gross bank NPAs since 2001 at Rs 6 trillion. Data collected by RBI over last one year blew the lid off what goes as banks’ loan classification.

The gross bank NPAs was 3.3 per cent in March, this year. It rose to 3.7 per cent by the end of June. Crisil predicted it could grow to 4.4 per cent by March 2014 turning almost Rs 1 trillion worth bank credit as NPAs within such a short span.  Gross NPAs of PSU banks have risen from Rs 71,080 crore as of March 2011, to Rs 1.55 lakh crore by the end of December 2012. Bulk of the NPAs was on account of only some 30 top loan defaulters, stated by Union Finance Minister P Chidambaram himself. Admittedly, a key reason behind the sudden spurt in bank NPAs is the economic slowdown. But, it would be naïve to believe that banks and large corporate borrowers did not notice the early warning.

Yet, what was the government doing about it? Who are those 30 top loan defaulters?  What are their business profiles? How could they access to such large bank funds despite the risk factors linked with their businesses in view of the current economic slow down and their past loan repayment records? And, who are their guarantors? These are some of the questions long bugging stakeholders, including depositors and ordinary shareholders. They would like to have some convincing answers from those big NPA-hit banks or the government. Government banks are bleeding. Taxpayers money is being doled out to recapitalize these public sector banks. The depositors and general public are in the dark. Even the Parliamentary standing committee on finance had expressed concern over the phenomenal rise in PSU banks’ NPAs in less than 18 months.

Notably, the impression one gets from recent statements-to-strictures by Finance Minister P Chidambaram, financial services sector secretary Rajiv Takru and RBI deputy governor K C Chakrabarty on the alarming rise of PSU banks’ NPAs caused mainly by some three dozen large loan defaulters that they are helpless about the way the public funds are openly stolen or taken away by some smart corporate cookies. Takru wants banks to ‘act tough with willful defaulters.’ Why are those banks not paying heed to the top finance ministry bureaucrat? Could it be because of some high-level political interference? Who are they? It is a common knowledge that several of the top loan defaulters are builders and real estate developers, all boasting top political connections in Delhi.

RBI deputy governor Chakrabarty’s frustration over the massive increase in bank NPAs is even more telling. At a recent bankers’ meet, he spoke about how banks sacrificed over Rs 1,00,000 crore by writing off ‘bad loans’ to corporates which, he said, was much higher than Finance Minister Chidambaram’s farm loan waiver in 2008 before lok Sabha polls that invited strong criticism by big industries and their apex bodies. What is preventing Chakrabarty, himself a former chairman of Punjab National Bank, from wielding his stick against the truant PSU bank management as a deputy governor of the country’s central bank? Why aren’t the government and RBI naming the defaulters and attaching all their assets along with their credit guarantors’? Bad loans are being recast like never before to save large corporate defaulters and bank themselves from public criticism in the name of corporate debt restructuring (CDR), mostly with retrospective effect, ignoring its impracticability and risk factors in many cases. CDR is often misused to temporarily window-dress balance sheets by both banks and loan defaulters. According to a Ficci report banks have cumulatively recast loans to the tune of Rs 2.5 trillion under the CDR exercise, mostly during the last few months. Last year, banks had restructured loans worth Rs 75,000 crore, almost double the 2011-2012 figure. Bankers privately fear that a good chunk could turn unproductive.

CDR provides relief to companies which are unable to repay existing loans by extending the payback period, reducing or partly waiving the interest rate, giving a repayment holiday and the option to convert a part of loan into equity. During last April-June alone, PSU banks had restructured loans of some one dozen companies for a total amount of Rs 20,000 crore. How many of the PSU banks do proper diligence before sanctioning credit and how fewer of them approve CDR on merit?

In the RBI deputy governor’s own admission, a majority of the write-offs involve big accounts, underscoring the need to hold the senior management, which clears the big loan proposals, accountable for its decisions. ‘Wrong appraisal is leading to diversions, leading to over- leverage, leading to fraud, leading to NPAs…they are all inter-related,’ he said.

Large bank NPAs in the last two years, the huge loan write-offs and sudden spate of CDRs before the Lok Sabha election are far worse than occasional bank robbery.

They rob depositors and shareholders of better return and the government of tax revenue to shield large corporates who have been traditionally running away with bank funds turning companies sick and throwing workers out of job, all with consent and connivance of bank management.

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