NPA vs Loan waiver of industrialists
Manohar Manoj
In the list of major issues running in the political domain of India, one issue which is frequently cited is that the government has waived off loans worth lakhs of crores of industrialists but the snake often sniffs at the loan waiver of farmers. This issue was also raised in the last Lok Sabha and Assembly elections. The interesting thing is that the ruling NDA did not defend these allegations but also never denied them. Now it is crucial to know the actual situation of this matter and tell it publicly. First of all, neither during the UPA period nor during the NDA period, any formal decision has been taken by the government regarding loan waiver of industrialists. If seen, during the 2010s, the amount of NPA i.e. non-productive banking assets or non-repaid loans increased rapidly in the country’s banking sector. When it reached ten percent of the total banking business i.e. ten to twelve lakh crores, then there was heated debate on it in public forums. Regarding this, the Modi government, while making strong allegations against the previous UPA government, also talked about issuing a white paper regarding the loans given by the banks under political pressure. A lot of information about the actual situation of this matter can be understood from the new figures presented by the government. According to the details presented in Parliament, the gross NPA of banks which was 14.6 percent of their gross assets in March 2018 has now come down to 3.1 percent i.e. Rs 3.16 lakh crore.
Whereas this amount of gross NPA of private sector banks is about 3.1 percent of their total bank loans i.e. Rs 1.34 lakh crore. That means 1.86 percent of the total loan outstanding of private banks is bad loans. It is noteworthy that along with government banks, private banks also have a significant share in this NPA of banks. According to the details presented in the Parliament, there has been a tremendous increase in the capital adequacy ratio and profit margin of banks during this period, which has increased from 11.5 percent in 2015 to 15.4 percent in September 2014 and the profit of banks increased to Rs 1.1 lakh crore this year compared to last year. It has become Rs 1.4 lakh crore. But this does not mean at all that all these loans have been forgiven. According to the Minister of State for Finance, banks will continue to harass their borrowers like before for the recovery of all these outstanding loans. According to the details presented in the Parliament, in the last ten years, banks made provisioning of Rs 12 lakh crore of their loans. Of these, the country’s public sector banks have contributed 53 percent i.e. Rs 6.5 lakh crore in the last five years only. State Bank, which has about twenty percent stake in the entire banking industry, alone made provisioning of Rs 2 lakh crore during this period. After this, provisioning of Rs 94 thousand crore was done through PNB. Provision of Rs 82 thousand crore by Union Bank and Rs 45 thousand crore by Bank of India has been made as per the guidelines of the Reserve Bank of India. In this sequence, if we talk about the current financial year, the government banks made a total provision of Rs 42 thousand crores.
According to the government, it worked on four R’s i.e. Recognize, Resolution and Recovery, Recapitalization and Reform to dispose of its non-productive assets and in this sequence, it made better use of all the existing laws for loan recovery. Under this, filing a civil petition against the loan defaulters in the Debt Recovery Tribunal i.e. DRT under Surfarosi i.e. Securitization and Reconstruction of Financial Assets and Enforcement 2002 and secondly filing a petition in NCLT under the Insolvency Act 2016. Third, an effort has been made to reduce NPA through a mutual settlement agreement between the debtor and creditor, and fourth, through the sale of NPA. After examining all these things, things are becoming clear that how the banking industry is misused on a large scale by the greedy corporates of the country. On the other hand, statistics testify that borrowers like self-help groups and MSMEs are making 100 percent repayment by making good use of this bank loan system. The reality is that the entire functioning of loan giving in the banking sector of the country has been under question marks. Big loan projects are approved by banks either under political pressure or at their discretion. We saw how PNB scam accused Nirav Modi and Mehul Choksi made away with Rs 12,000 crore by dodging the SWIFT process. Under the tutelage of top officials of the banks and their regulatory body RBI, these accused also absconded abroad.It is true that after all these financial disaster incidents, the government brought the Fugitive Offender Prevention Act. Because of this, many assets located in the country of these criminals were confiscated. Recently, Finance Minister Nirmala Sitharaman has stated that the Enforcement Directorate has seized assets worth about Rs 22 thousand crore of fugitive economic criminals like Vijay Mallya, Nirav Modi and Mehul Choksi in the country. Overall, the political narrative given by the opposition about loan waiver of industrialists is in itself giving a wrong message regarding the cleanliness of the banking environment of the country, a message which gives a message of impunity to the borrowers. Whereas the message should be given that except in times of disaster, loan waiver by whomever and willful default by whomever it is done, both are like cancer for the economy. On this entire matter, the government should make the process of selection and approval of loan projects of banks completely scientific, transparent, fair and technology-driven, in which there is no scope for any discretion. On one hand, the process of giving a loan should be very liberal, and on the other hand, the process of loan recovery should be equally strict. If loans worth billions of rupees are easily approved and applicants have to wear their slippers for loans worth lakhs of rupees, then the loan process of banks gives rise to many questions in itself. Currently, there is a debate among development economists as to whether the philosophy of debt-driven development or investment of profit surplus is appropriate. Because loan generated NPA is not only destructive for our economy but also encourages corruption and crime. It is true that the Modi government has achieved confidence in the figures by reducing its NPA from 15 percent to 3 percent through provisioning, but this process of loan recovery should continue until every dues is recovered.