The simple truth is, you cannot sweep Rs 1.14 lakh crore under the carpet. On Tuesday, the Supreme Court ordered the Reserve Bank of India to provide a list of name of defaulters who owed banks over Rs 500 crore. The RBI tried to stall by saying that the lists were available with individual banks, but the court did not fall for this excuse. Bad loans to the tune of Rs 1.14 lakh crore were written off by banks between 2013 and 2015. Around Rs 40,000 crore was written off in 2015 alone.
The government has been trying to shore up public sector banks through an infusion of equity, but the surprising twist to this story is that nothing is being done to recover the loans or investigate how these loans turned bad. The unwritten rule in banking is that the small people get penalized while the big defaulters walk away with write-offs. The Supreme Court has rightly termed the write-off as a fraud and a deeper investigation will reveal the names of the dramatis personae in this sordid saga. Since the Government of India is a major shareholder in public sector banks it has much to lose, but by extension it is the tax payer who eventually pays for the write-off.
The real story is that had banks exercised greater care while lending, the write-off would not have reached such gargantuan limits. The intervention by the Supreme Court is therefore, welcome and necessary because the government and RBI have not being doing their job of setting strict guidelines for lending and even stricter rules for recovery.
