Biggest scam in banking sector unfolds
18 Nov 2013 12:42 AM GMT
With the Reserve Bank of India (RBI) clearly stating that the banks have failed to implement efficient and speedy measures for recovering stressed assets, why is the government sitting on the names of massive loan defaulters citing banking secrecy laws? As B Mahapatra, the central bank executive director has claimed, overall asset restructuring in the banking system, which touched Rs 3.5 lakh crore in June this year, has gone ‘out of control’, while the banks, over the last 13 years, have cumulatively written off over Rs 1 lakh crore of bad loans, evidently pointing towards the biggest scam in the banking sector spanning the last decade.
In fact, instead of reassessing the credit checking regulations, the banks are still carrying on with their policy of lending to these willful and chronic defaulters in the private sector. This, despite emerging reports that the banking system’s slippage to recovery and upgradation ratio has shot up to 257 as of March 2013 from 217 in March 2011 as banks have failed to implement efficient and speedy measures for recovering stressed assets, according to the Reserve Bank.
‘The extent to which banks are able to reduce NPAs through recovery efforts is deteriorating, which is evident by the increasing ratio of slippages to recovery and upgradation,’ RBI deputy governor KC Chakrabarty told the annual banking event over the weekend. Chakrabarty had earlier flayed the banks for using ‘technical write-offs’ to reduce their non-performing assets (NPAs) or bad loans over the years. A technical write-off enables banks to claim that they do not have any bad loans on their books by fully providing for the loans from their earnings. It also reduces their tax outgo. According to Chakrabarty, after a write-off, there is no incentive to pursue recovery. Chakrabarty, however, said the write-offs have contributed significantly in reducing NPAs. Write-offs as a percentage of reduction in NPAs stood at 37.8 as on March 2013 for entire banking system as against 33.4 as on March 2012, 42.4 in March 2011 and 50.2 in March 2010.
This increase in the slippages ratio was a tad above March 2012 when the slippage to recovery and upgradation ratio stood at 255.9. But the government has not initiated any criminal investigations into the matter since most of these chronic defaulters provide generous funds to both the ruling party and the principal opposition, thereby effecting a virtual gag order on raking up the issue. Moreover, in recent times, several high profile appointments in both public and private sector banks have been influenced by large private firms so as to keep going the practice of lending to these intentional defaulters, despite the palpable pressure on the state to disclose the names of these male fide private firms.
Demand is gaining ground that many big corporate firms, which have huge public debts, should come under CAG audit. Several of these private corporations have managed to gobble up enormous amounts of public funds in the name of economic slowdown, when in reality, they have diverted these sums to offshore accounts for personal use, in the name of buying foreign assets and economy tie-ups.
Surprisingly, in most of these cases, no criminal charges have been pressed against these private corporations, despite their siphoning off public money as private bad debts and senior banking officials having got away scot-free in the process. UPA government, in the last 10 years, have appointed a number of people with dubious credentials in key positions and as independent directors in various nationalised banks. One former powerful lady in the finance ministry had played a major role in appointing a number of corrupt officials in top positions in the public sector banks.
The average slippages to recovery and upgradation ratio for public sector banks during the six-year period of 2007-13 stood at 220.6 as against 211.3 in the comparable period (2001-06) earlier, Chakrabarty said. New private banks average slippage ratio during 2007-13 stood at 1.8 per cent as against 5.7 per cent during 2001-07. According to the latest data, as of the September quarter, net bad loans of 40 listed banks soared 38 per cent to Rs 1.3 trillion.
‘The net bad assets of the 40 listed banks have jumped 38 per cent to Rs 1,28,533 crore during the first half of this fiscal, from Rs 93,109 crore at the end of the last fiscal, and is likely to be Rs 1.5 lakh crore by the end of the fiscal,’ according to the data collected by NPAsource.Com. Out of the total 40 listed banks, 14 banks have reported more than 50 per cent jump in their net NPAs during these six months, the study said.
In fact, instead of reassessing the credit checking regulations, the banks are still carrying on with their policy of lending to these willful and chronic defaulters in the private sector. This, despite emerging reports that the banking system’s slippage to recovery and upgradation ratio has shot up to 257 as of March 2013 from 217 in March 2011 as banks have failed to implement efficient and speedy measures for recovering stressed assets, according to the Reserve Bank.
‘The extent to which banks are able to reduce NPAs through recovery efforts is deteriorating, which is evident by the increasing ratio of slippages to recovery and upgradation,’ RBI deputy governor KC Chakrabarty told the annual banking event over the weekend. Chakrabarty had earlier flayed the banks for using ‘technical write-offs’ to reduce their non-performing assets (NPAs) or bad loans over the years. A technical write-off enables banks to claim that they do not have any bad loans on their books by fully providing for the loans from their earnings. It also reduces their tax outgo. According to Chakrabarty, after a write-off, there is no incentive to pursue recovery. Chakrabarty, however, said the write-offs have contributed significantly in reducing NPAs. Write-offs as a percentage of reduction in NPAs stood at 37.8 as on March 2013 for entire banking system as against 33.4 as on March 2012, 42.4 in March 2011 and 50.2 in March 2010.
This increase in the slippages ratio was a tad above March 2012 when the slippage to recovery and upgradation ratio stood at 255.9. But the government has not initiated any criminal investigations into the matter since most of these chronic defaulters provide generous funds to both the ruling party and the principal opposition, thereby effecting a virtual gag order on raking up the issue. Moreover, in recent times, several high profile appointments in both public and private sector banks have been influenced by large private firms so as to keep going the practice of lending to these intentional defaulters, despite the palpable pressure on the state to disclose the names of these male fide private firms.
Demand is gaining ground that many big corporate firms, which have huge public debts, should come under CAG audit. Several of these private corporations have managed to gobble up enormous amounts of public funds in the name of economic slowdown, when in reality, they have diverted these sums to offshore accounts for personal use, in the name of buying foreign assets and economy tie-ups.
Surprisingly, in most of these cases, no criminal charges have been pressed against these private corporations, despite their siphoning off public money as private bad debts and senior banking officials having got away scot-free in the process. UPA government, in the last 10 years, have appointed a number of people with dubious credentials in key positions and as independent directors in various nationalised banks. One former powerful lady in the finance ministry had played a major role in appointing a number of corrupt officials in top positions in the public sector banks.
The average slippages to recovery and upgradation ratio for public sector banks during the six-year period of 2007-13 stood at 220.6 as against 211.3 in the comparable period (2001-06) earlier, Chakrabarty said. New private banks average slippage ratio during 2007-13 stood at 1.8 per cent as against 5.7 per cent during 2001-07. According to the latest data, as of the September quarter, net bad loans of 40 listed banks soared 38 per cent to Rs 1.3 trillion.
‘The net bad assets of the 40 listed banks have jumped 38 per cent to Rs 1,28,533 crore during the first half of this fiscal, from Rs 93,109 crore at the end of the last fiscal, and is likely to be Rs 1.5 lakh crore by the end of the fiscal,’ according to the data collected by NPAsource.Com. Out of the total 40 listed banks, 14 banks have reported more than 50 per cent jump in their net NPAs during these six months, the study said.
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