Bad loans cannot be dismissed as legacy issue; better attend to it

Indian Finance Minister Arun Jaitley , reviewed, November 23, the level of non-performing assets or bad loans of the state-owned banks which account for over 70 per cent of the Indian banking business.

                                      North Block housing FM office  

After the meeting , he tweeted that the level of bad loans of the  Indian banks is “unacceptable”. At his press conference,  the Finance Ministry beat boys and girls were rather careful in crafting questions even when they wanted to ask some real tough ones. Having been a beat boy myself in different ministries, I know their problems. Simply put, if they act “too smart” either in asking questions or in writing story, they would not get one.  The editor is  not going to listen. He/she would like those on the beats to be “cultivating “ ministers and secretaries and not offending them. Anyways, let me not distract and return to the basic issue of bad loans.

This meeting of the FM with the banks was quite well publicized through the official tweets and agency reports.  Some market analysts and TV anchors were discussing whether any major announcement could be expected. Well, bankers had a review meeting with PM Modi some months ago following which “Indradhanush” (Rainbow) package was announced . That had . included recapitalization of Rs 70,000 crore in four years, giving autonomy to banks and political leaders keeping off. It is a different thing that given the gravity of the problem, much more capital infusion is required in the banks where majority stake is held by the government.  

So, in any case, you cannot expect packages every time the FM reviews functioning of the banks owned by the government. In a rather dismissive way, Jaitley talked about generalities like the Bankruptcy bill in the pipeline and how it would help the defaulters exit from the messy companies promoted by them. The sector specific problems in steel and power were also discussed and I am sure, bankers would or rather should have given their real take on the issue.

The FM is right when he says that some of the problems are legacies being attended to by this government.  This government of PM Modi is now about 18-month old and I am sure, the FM would not like to leave this legacy for the next government whoever forms it. So, the best way is to attend to the problem as it exists today and not always blame the legacy. After all, it is because of this legacy issue that Mr Modi swept the elections and the Congress punished. Sure, the country would  not like to be left with at least this kind of a legacy.    

Global firm CLSA has estimated that about 15 per cent of advances by the Indian banks are under stress. Now that is huge and surely, not sustainable and as Jaitley says “unacceptable”. Assuming that some such estimates would have exaggerated the figure, let us take the  RBI figures. It  had put this stressed assets (NPA plus restructured assets) at 11.05 per cent of gross advances as in  March,2015.

According to CLSA, the Indian government is not giving the kind of urgency which is required to address the issue. On the face of it, that may appear so and who knows CLSA may be right. But what gives me hope is a report in Business Standard how Vijay Mallaya , the poster boy of yester years, is trying to work out a deal with the banks to pay them back Rs 7,000 crore . The change of heart in Mallaya, who is believed to be ‘ willful defaulter’ ( legally or otherwise), has come about after Central Bureau of Investigation started  building  pressure on him and his firms including the grounded Kingfisher Airlines.

Maybe, what Finance Ministry and RBI cannot do, CBI can do it, at least with the willful defaulters and there are plenty of them. 

      

Pic courtesy: GOI