The country’s banking system is messy. Monitoring is weak and the large, unscrupulous borrowers are the end beneficiaries. Small depositors are the worst affected, and they must rise as one in protest
If a person borrows a small sum and is unable to repay the debt, the banks blacklist him. He is not to be eligible for receiving any future credit. But if one is among the 10 biggest Indian corporates, one not only enjoys the luxury of loans being repeatedly waived off, almost to the tune of two lakh crore rupees in total, but also continues to receive more loans and possibly more waivers. This has been revealed by the Reserve Bank of India.
No assessment has been done of the losses small depositors and senior citizens have suffered due to exorbitant interest payments and high bank charges. It would be more than double the amount than the corporates have gained.
In fact, RBI Deputy Governor Kamalesh Chandra Chakrabarty has said that it is almost a regular practice of the banks to window-dress their non-performing assets — which have incidentally been on the rise.
The RBI has observed that higher the loan amount, greater the banks’ risk. Since 2007, credit to 10 large corporate groups has more than doubled. The RBI has also noticed that higher the debt, greater the chances of default. In all such cases, non-performing assets also increase.
There was much brouhaha over the Rs 53,000 crore one-time farm loan waiver. It was, no doubt, a populist decision to earn political mileage. But in this case, the banks did not lose a penny as the Union Government repaid the full amount. In other words, the Union Government, like a good Samaritan, repaid the loans of the farmers!
But farmers, who have got their loans waived, are likely to have problems in future. The banks bar such farmers from getting loans in future. This had happened before, and will happen again.
An individual who fails to pay even one instalment on time is harassed by the bank. The latter sends its goons who are known to forcibly take possession of the automobiles and other assets of the defaulter.
The corporates do not have any such fear. They continue to take out loans for one or the other group. Since they are organised, they use their combined strength against any unfavourable rule, through lobbying. Farmers or other individual borrowers, unfortunately, do not have that leverage.
Corporate loan-waiver is a continuous process. The RBI has records from 2001, when Rs 6,446 crore was waived. Figures from 1991 to 2000 are not available, but RBI sources say that it would be a large amount.
Each year the amount has increased. It was Rs 8,711 crore in 2002; Rs 12,021 crore in 2003; Rs 13,559 crore in 2004, Rs 10,823 crore in 2005; Rs 11,657 crore in 2006; Rs 11,621 crore in 2007; Rs 11,653 crore in 2008; and Rs 15,996 crore in 2009. In 2010, it touched Rs 25,019 crore; went up to Rs 23,896 crore in 2011; and Rs 20,892 crore in 2012.
This year, when economic indicators have been plummeting and national growth has come to a near standstill, the figure has touched an all-time high of Rs 32,218 crore.
During the last 10 years, banks have lost a total of Rs 2,04,512 crore. They have only recovered partially against these loans to the extent of Rs 37,955 crore, mostly against some collateral.
RBI numbers showed that as the gross domestic product was rising, banks added Rs 4,94,836 crore to their bad loans between 2007 and 2013. In other words, the ‘gain’ in terms of economic indicators was actually a gross loss for the banking sector.
It also means that the common man, who is putting his money in the banks, is the biggest loser. During these years of supposed growth, the corporates have also gained in terms of reduced lending rates. But small depositors, who contribute the most towards the growth of banks, have been net losers. They received less interest; the situation remains the same even today. More the small depositors lose, more the corporates gain, in terms of loan waivers, interest waivers and the various allowance to repay loans in a staggered manner. In many cases, the interest that is waived off is not shown in the books.
The advantage for the corporate is that it need not show these gains as profit. Thus, shareholders also lose in terms of dividend and the Government loses its taxes.
The banking system is too messy. Monitoring is weak and the large unscrupulous borrowers are taking benefit of that. The small depositors, if not the Government, have to come together to stop the defrauding they are subjected to. This is a serious challenge to the health of the banking sector and, to the economy, since banks form a solid base in a country’s economy. If the policymakers do not correct the banking sector, we are in for a disaster.
Awakening the soul