The cat is out of the bag “ finally. Only, nobody seems really to know how big and mighty this “cat” is. Finally, the junior minister for finance in the Gyan Sangam came out with the number, a whopping Rs 8 lakh crores of Non Performing Assets (NPA) - double of total planned revenue expenditures made by the union government in a year.
Banks advance loans to companies and individuals out of the deposits that citizens place with them from their hard earned savings. These loans are referred to as “assets” by banks. So when these banks advance loans to businesses they are supposed to diligently check the recoverability just as anybody would check an asset before acquiring it. Inspite of such diligence, when the borrower does not pay up interests and instalments for three months it is called a Non Performing Asset.
S&P, Moody’s and Fitch, in their ratings on our economy have constantly been alerting on quality of our advances. In July 2014 the Finance Minister in the current regime mentioned, “The rising Non Performing Assets of Public Sector Banks is a matter of concern for the Government. Six new Debt Recovery Tribunals would be set up….….Government will work out effective means for revival of other stressed assets.” We are yet to be educated on what the government did in the last two years on this most important agenda. How much money could we get back? In the budget the Union Government provided 25,000 crores on this account but it maintained a stoic silence on the gargantuan magnitudes. It was reported that 30 Indians did not repay their loans to Indian government banks, a sum of Rs 1.25 lakh crores.
The question being asked is “ how on earth are these super rich business tycoons walking free, enjoying their lifestyles, partying in yachts and private islands, buying and selling the most expensive teams and players “ but yet coolly getting away saying they have no money to pay back to the banks. And it is the tax payers again who are asked to cough up 25,000 crores to recapitalise the banks. An MP reportedly involved claims immunity on these matters “ suffice it to say he was voted in at the Rajya Sabha with support of MLAs cutting across party lines.
Business is indeed done on risks and there will always be unforeseen circumstances in dealing with risks “ but I think unless the last penny is out “ a person cannot hide behind the corporate veil and claim, “Not me, the company took the loan.”
What were the banks doing all these years “ I mention particularly the last two years “ when this matter went from bad to worse? The RBI should publish what sort of due diligence was done by these banks over the years. It has been reported that the CBI had in fact cautioned these banks already. The banks should publish what the reasons for the delinquencies were “ bad market, adverse government policies/ instructions, world economy or just plain and simple siphoning off of funds or laundering of unaccounteds.
The government, even late last week, said “We are not paying out, we are “provisioning”. The question is then what stops the government from attaching properties of these defaulters and auctioning them? Why ask the tax payer to cough up 25,000 crores, again? Far from any serious actions “ I never saw even the willingness to name these defaulters.
The roles of the bank executives, the statutory auditors and the internal auditors should be thoroughly examined. It’s a mystery how this case has been allowed to rot for years together. It does not sound as tough as bringing-back-black-money-stashed-overseas-in-100-days. At least all of the money and the people concerned are well known to these banks, so what is really stopping recoveries?
I think this matter should be dealt with on a war footing “ being the big ticket item it seems. I also think a lot of this evil stems from the pall of secrecy hanging over the ambience which the defaulter invariably turns to his credit. The Bankruptcy and Insolvency code stuck at the Lok Sabha for months should be forthwith prioritised and passed. I have been advocating a relook at the cooling off periods in cases of mergers and acquisitions in that bill “ but in any case let it start getting implemented at least. I would also recommend the enlarging of the definitions of ‘wilful default’ to mean not only diversion of funds borrowed but also any matter not being a matter applicable to most of other units in the same industry “ I think that could make it easier to prove ‘wilful default’ in a court. Also fast track all such cases. There are cases in courts going on in this matter for three years as far as I know.
I think the government has an opportunity on its hands “ the one it missed by promising 15 lakhs in your account. The opportunity is tackling this den of Non Performing Assets firmly and resolutely, no matter how exalted the debtor is. I have been an ardent follower of Lord Keynes and he used to say.... “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”
Binayak Datta is a senior chartered accountant and a corporate consultant. He is also a visiting lecturer at prestigious educational institutions across Goa
