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Posted at: Jul 9, 2018, 12:48 AM; last updated: Jul 9, 2018, 12:48 AM (IST)

Toxicity level rising

Rise in stressed assets of banks remains unabated, but no one seems to be responsible for these lapses. Although hundreds of defaulters have been identified, effective resolution of the banking woes is still elusive, finds Rajeev Jayaswal
Toxicity level rising

Disgraced absconders Vijay Mallya and Nirav Modi have fully exposed the vulnerability of the Indian financial institutions and the helplessness of the country's law enforcement agencies. The audacity of the two poster boys of bank frauds has, however, done one service  thing - exposed the rot in the banking sector. 

Are the two solely responsible for over Rs 10,00,000 crore of bad loans that banks have accumulated over a decade? Just two absconders cannot be responsible for all of the non-performing assets (NPAs); there are several Vijay Mallyas and Nirav Modis in the country who remain hidden from  public gaze even after having embezzled crores of rupees, particularly from public sector banks (PSBs). 

Industry sources reveal that there are more than 200 NPA accounts that owe Rs 500 crore or more to various banks. Their total exposure is estimated at around Rs 3,00,000 crore. Possibly, not all these account holders are in the category of Nirav Modi or Vijay Mallya. Some of them could be genuine victims of market volatility and changed business circumstances. But, a majority of them would be wilful defaulters.

It is usual for the government to put the blame on the predecessors. After four years of rule, Finance Minister Piyush Goyal cannot dismiss his responsibility by saying that "the stress in the banking system was not created in the last three-four years; this stress was a carried forward legacy of several years of the previous government". It is the responsibility of the incumbent to clean the rot, even if inherited. No doubt, this is a historical problem; therefore, it should be approached with its temporal dimension - effective measures to check further growth of NPAs and decisive action to recover the old dues. Thorough investigation and punitive action are essential parts of this two-prong strategy that should act as a deterrent for the unscrupulous bank executives who are accountable for their sins of deliberate omissions and commissions. A scam of this proportion cannot be possible without  political connivance. This also must be probed.

It is surprising that NPAs are still growing. In fact, they have grown faster after  Vijay Mallya's escape from the country with a dozen suitcases in March 2016. Gross NPAs of public sector banks that stood at Rs 2,67,065 crore on March 31, 2015, jumped by over 158 per cent to Rs 6,89,455 by June 30, 2017. The surge continued. The recent Financial Stability Report (FSR) of the RBI points at a worsening situation. It has estimated that the gross NPA ratio of banks is expected to increase from 11.6 per cent in March this year to 12.2 per cent by the end of the current fiscal. In absolute terms, NPAs of commercial banks have already touched Rs 10.2 lakh crore, where PSBs have about 90 per cent share. It indicates a disturbing trend. While banks are unable to recover their dues, unscrupulous borrowers appear confident that they will get away with the crime.

Bank frauds are rampant. All this is happening even after the banking sector regulator had put in place a comprehensive standard operating procedure (SOP) three years ago - the framework for dealing with loan frauds - aimed at prevention, early detection, prompt reporting to the RBI and other investigative agencies, besides timely initiation of  staff accountability proceedings. The SOP provides that all accounts exceeding Rs 50 crore, if classified as NPAs, should be examined by banks for fraud. Possibly, this could be the reason for the rising number of NPAs and frauds without any effective effort to recover the dues. 

The enormous NPAs need to be settled, the truth behind the mess must be told to the nation, the culprits must be identified and the guilty punished. The reason is simple: huge taxpayers' money is involved in banks, particularly the PSBs that recklessly disbursed loans to defaulters like Vijay Mallya, Nirav Modi and Kotharis of Rotomac without insisting on commensurate collaterals. Taking a loan from a bank is an onerous task for a common man. How could it be so easy for unscrupulous defaulters? It is not without the connivance of top bank executives. The case in point is the alleged quid pro quo between Videocon Group promoter Venugopal Dhoot and Deepak Kochhar, the spouse of ICICI CEO & MD Chanda Kochhar. It is intriguing that the even the private bank's board had been showing undue zeal in safeguarding influential CEO Kochhar than securing interests of the shareholders from the time a whistleblower blew the lid off the alleged conflict of interest. This is the case of India's largest public sector bank. The situation in PSBs is expected to be worse as political interference in their business cannot be ruled out.    

Names of wilful defaulters and their cronies (both in banking and political systems) must be made public. The government and banks run by it are keeping names of rogue borrowers under the wraps citing commercial reasons. It has, however, announced capital infusion of Rs 2,11,000 crore in PSBs to revitalise them under the Indradhanush plan. If the public money is spent to revive banks hit by their own mismanagement, the people of the country have the right to know the names of the defaulters. It would act as a deterrent if the culprits are named and shamed. 

There has been a tendency among public officials to pass NPAs as bona fide omissions. Cabinet Minister Arun Jaitley has said in one of his articles, titled "The Fiction of Loan Waiver to Capitalists", that colossal irregularities committed by the erstwhile UPA regime had led to the accumulation of huge NPAs. He  also prompted the public "to ask the rumour mongers at whose behest or under whose pressure were such loans disbursed". It appears that the incumbent government knows the culprits. It is, therefore, its duty to nab the perpetrators of bank frauds and bring them to justice.

Under PCA watch list 

  • OBC
  • IDBI Bank 
  • UCO Bank
  • Bank of India
  • Dena Bank
  • Allahabad Bank
  • Corporation Bank 
  • Central Bank of India
  • Indian Overseas Bank
  • Bank of Maharashtra
  • United Bank of India

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