Stacking NPA

Current Issue & Our Stand

The economic growth is largely dependent on the timely flow of credit to different sectors of the economy and in a bank-dominated financial system like India that depends highly on the soundness of banks. The Reserve Bank of India’s (RBI) Financial Stability Report 2017 observes that with high risk of accumulating Non-Performing Assets (NPA), the profitability and efficiency of Public Sector banks (PSB) are fast declining and this will have a negative impact on economic growth. According to the said Report based on the baseline macroeconomic scenario that the NPAs are going to increase from 9.6% in 2016-17 to 10.02% in 2017-18. It is a vicious circle that the economic slowdown is causing an increase in NPAs and the high level of NPAs is forcing banks to hold back on credit and slowing down the economy further.

Debt in PSBs and excessive defaults by the corporate sector has added the misery to the economy. Aggressive lending without due diligence and monitoring and writing off huge bad debts of the corporate sector have had their visible share in decelerating economic growth. Sector-wise credit outstanding of commercial banks shows that industry accounted for the largest share, 41.71% in the total outstanding credit whereas agriculture and allied activities account for 13.49%. It is to be noted that recently the government had waived off more than 1.5 lakh crore debt and 95% of these are corporate large loans. It is double than the farm-loan waiver by the then UPA government. It is crystal clear that the burden of NPAs for PSBs is mainly due to excessive corporate financing, which constitutes 59% of the total borrowing from banks alone. This is also an indicator that sluggish industrial growth has impacted on loan repayment. The poor growth of industrial and agriculture sectors is dangerous as they will create more bad loans for the banks and further slowdown economic growth.

The banks are saddled with NPAs of about Rs.8 lakh crore, of which PSBs alone account for about Rs.6 lakh crore. More micro calculation reveals that the total stressed assets including restructured loans NPAs made to look like standard assets by relaxing repayment terms are much higher at over Rs.10 Lakh crore. The well-known international credit rating agency Fitch Ratings calculated that the Indian PSBs required $65billion additional capital to meet the Basel III capital standards. 90% of this capital is required by the financial year ending March 2019, which comes near about Rs.3.8 lakh crore. The Modi government is now contemplating sale of so called capitalization bonds. The bonds will be issued by the Union government and will most likely be subscribed to by state- run financial institutions such as LIC. It is clear from the reports that a part of the estimated capital will come from the budget. It is Rs. 70,000 crore. Collection from LIC through Capitalisation Bonds will be Rs. 1.1 lakh crore. Whether it is money coming from the budget or from the LIC, the government is using up resources collected from the common man as taxes or as insurance premium from millions of LIC policy holders to bail out the banks. It is tantamount to bailout the industrial houses who took huge loans but did not return to repay. The government should collect the money from the defaulters instead of squeezing the common man. Otherwise these defaulters will divert their assets to their personal accounts or shell companies as Vijaya Mallya did. He has diverted Rs.6000 crore bank loan taken for Kingfisher and left the country.

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