NPAs and the conspiracy of silence : The Tribune India

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NPAs and the conspiracy of silence

THE issue of the non-performing assets (NPAs) of banks, particularly public sector banks (PSBs), is getting more curious with each passing day.

NPAs and the conspiracy of silence

Employees of the Punjab National Bank resort to ‘Gandhigiri’ to recover bad loans in Meerut. PTI



Jagdeep S. Chhokar

THE issue of the non-performing assets (NPAs) of banks, particularly public sector banks (PSBs), is getting more curious with  each passing day. When the government proposed setting up an Asset Reconstruction Company (ARC) to bail out the erring banks with public money as a solution, the Governor of the Reserve Bank of India (RBI) was reported to have countered, “Why should the taxpayer pay for reckless lending by banks in the past?” The RBI was reported to be “averse to the idea of government or the RBI contributing equity to the asset reconstruction company.” 

Way back in November 2011, the Central Information Commission (CIC) gave a series of decisions asking the RBI to disclose information to the public, including details of top defaulters. The RBI had appealed against these decisions. The Supreme Court gave its decision on December 16, 2015. The decision opened with the following paragraph:

“The main issue that arises for our consideration in these transferred cases is as to whether all the information sought for under the Right to Information Act, 2005 can be denied by the Reserve Bank of India and other Banks to the public at large on the ground of economic interest, commercial confidence, fiduciary relationship  with other Bank on the one hand and the public interest on the other.” After going into the details and merits of 11 decisions by the CIC, the Supreme Court upheld all of them and asked the RBI to give all the information that was sought by the applicants.

Despite that decision, the RBI is reported to have “steadfastly maintained that the names of 'wilful defaulters' and loans that have gone bad should not be made public”. It has made this argument in the court to defend its position, even as it has provided the list to the apex court in a sealed envelope

The Supreme Court took suo motu cognisance of a newspaper  report, and questioned the RBI whether the write-offs were a “big fraud” and also sought explanations from the Union Finance Ministry and an association of PSBs making them parties to the case. A headline read: “Bad loans: Reform the banking system, Supreme Court tells govt.” A bench led by Chief Justice was reported to have said that a “sensible and sensitive” approach was required to “overhaul the entire system which had scores of people and entities with outstanding to the tunes of crore of rupees.” It is interesting that the highest court in the land has to tell the government to do its job!

Then came the reports that the RBI Governor gave the Public Accounts Committee of Parliament six reasons for the unprecedented high level of bad loans (see box). On May 9, 2016, comes the news that “To reduce pressure of bad loans on the banking system, the government is discussing the possibility of extending indemnity to bankers dealing with one-time settlement of non-performing assets (NPAs).” 

An interesting part of the report is: “Experts said absence of protection from vigilance/regulatory backlash is a lacunae in the Indian banking system.” Replying to the debate on the Finance Bill, 2016, in Parliament, on May 7, the Finance Minister is reported to have said that NPAs happened because of two reasons: Some loans were given wrongly and a weak economic and business cycle led to rise in bad loans in sectors like steel. The NPA issue with banks is an issue of concern. Some loans may have been given wrongly. I am not going into who is responsible for it. But weakened business cycle due to global economy has also impacted bank balance sheets.” The key part of the statement is: “Some loans may have been given wrongly. I am not going into who is responsible for it.”

In the context of all of the above, where either the borrowers are considered guilty of hoodwinking the system, a la Vijay Mallya, or the bankers considered to have given loans wrongly; the RBI Governor does not want to reveal the names of defaulters; bankers need to be provided indemnity for taking wrong decisions; and the Finance Minister does want to go into who is responsible for giving wrong loans; it seems important to ask why is that all discussion of NPAs and bad loans starts with the borrower and ends with the lender. No one, including the Finance Minister, seems to be interested in asking the question: Why did bankers give loans wrongly?

One possible answers is that the bankers were incompetent or corrupt. If this is so, a follow-up question comes up: How and why were they appointed, and by whom?

The other possible answer is that they were not incompetent or corrupt but they did this under some pressure. The follow-up question here is: Where did the pressure come from and who exerted the pressure?

All these questions were answered unambiguously by none other than the Governor of the RBI on August 11, 2014. While delivering the Twentieth Lalit Doshi Memorial Lecture, he said: “The crooked politician needs the businessman to provide the funds that allow him to supply patronage to the poor and fight elections. The corrupt businessman needs the crooked politician to get public resources and contracts cheaply. And the politician needs the votes of the poor and the underprivileged.”

Another issue that deserves consideration is:Why is the current government which has been in office only for about two years, does not investigate the matters fully since several arguably questionable decisions must have been taken during the tenure of the earlier government? The answer to this has been provided by a retired professor of economics in very simple terms though in a slightly different context, that of the Panama Papers. And the answer is: “Almost all political parties and/or people close to them are involved in this activity.”

And that, dear reader, is the elephant in the room about which there is a conspiracy of silence. The Supreme Court tell the government to “reform the banking system”, the government wants to give indemnity to the bankers, the RBI does not want to reveal the names of defaulters, but no one, repeat no one, wants to get to the bottom of the issue and say that bad loans accumulated due to political pressure on banks to give dubious loans so that the borrowers could share part of the loot with politicians who put pressure on the banks in the first place, thus completing the circle. But the million rupee question is: Who will bell the cat?

The writer is a former Professor,  Dean & Director in charge of Indian Institute of Management, Ahmedabad. The views expressed are personal.

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