It is astonishing that while small borrowers are heavily penalised when they default on their loans, large borrowers like businessman Vijay Mallya get to bargain from foreign shores
At the drop of a hat or under every brick, you find people calling themselves, experts. Their standard diagnosis of every problem is the failure of the system or poor supervision. Take the case of loans: The rich get large amounts of credit and little happens to them when they don’t pay back their debt. The banks merely write off their bad debt or simply label them as non-performing assets.
Twenty-nine state-owned banks wrote off a total of Rs1.14 lakh crore of bad debt between 2013 and 2015, much more than they had done in the preceding nine years. In response to an RTI application, the RBI disclosed that while bad debts stood at Rs15,551 crore for the financial year ending March 2012, the amount had increased three times to Rs52,542 crore by March 2015.
This is not due to a system failure but due to unwritten and illegal directions from political bosses to give tax payer money as loans and then, when those loans are unpaid, they may be written off as bad debt.
Why does the state not past laws or directives that loans must only be sanctioned after adequate security checks are carried out, so that fraudsters may not cheat the nationIJ Most of the current laws are only enforced in the case of small borrowers who have no influence in the system.
In December 2015, India’s external debt was pegged at $426 billion. The Supreme Court has ordered RBI to share information about the cases where loans worth more than Rs500 crore have been written off. Some people have argued for protecting the names of these people but this writer is baffled by this argument. Why shall we not name a thief who has stolen from the nationIJ
In this context, the apex court has asked of the Reserve Bank of India: “Are you happy funding these companies, who declare themselves as sick but whose owners have a lavish lifestyle... Thousands of crores have been written off as bad debts in one day. You must recover that money. From this news report, it looks like a regular phenomenon... You are supposed to keep a watch on these banks. What are you doing about keeping a watch, if you don’t even have this informationIJ You have a list of major defaulters who run empires and yet default”.
This author is again surprised to see the various definitions of defaulters. One category of defaulters is referred to as ‘Wilful Defaulters’. The RBI defines a wilful default as deliberate non-payment of dues by the borrower despite adequate cash flow and a good net worth. like a murder is a murderer and a thief is a thief, a defaulter is a defaulter — wilful or otherwise. Niceties and twisted definitions are a way to help the criminals.
These defaulters connive with powerful people in Government and twist the tails of bankers to get loans for unviable projects. This system has enabled some plunderers to rob the country much like the British colonisers did in the previous century.
The money that defaulters owe Indian banks has grown nine-fold over 13 years, and is more than 1.5 times the Union Government’s allocation for agriculture and farmer welfare (Rs35,984 crore) in the 2016-2017 Union Budget.
According to Sanat Dutta, a lawyer who has been associated with nationalised banks and debt recovery tribunals for more than 10 years, “Government banks face immense pressure from parliamentarians to provide loans to corporates. The politician-bureaucrat-corporate nexus is very strong”.
General Secretary of All India Bank Officers’ Associations S Nagarajan echoes this sentiment. He says, “A powerful nexus between chairmen of public sector banks, auditors, Reserve Bank of India and the banks’ boards is behind the country’s total Non-Performing Assets and wilful defaulters,”
While real estate mogul and former liquor baron Vijay Mallya has stolen all the headlines for defaulting on public loans after his ambitious project — Kingfisher Airline — went bankrupt, he is hardly the only one to default on big loans. In fact, there are some Members of Parliament as well who had huge amounts of unpaid debt.
Earlier, Mallya had offered Rs4,000 crore to the banks to settle the Rs9,000 crore he owes. When this offer was rejected, he made a revised offer of Rs6,000 crore which is under consideration. Mallya has also been directed by the Supreme Court to disclose all his assets and investments to the banks.
Meanwhile, the country is being bled to the core, if the RBI’s list of 7,265 borrowers, who borrowed more than Rs25 lakh and now collectively owe Rs64,434 crore to public sector banks (as on September 30, 2015) is anything to go by. Of these, first-information reports have been filed in only 1,624 cases. This author cannot divine why the other defaulters have been spared.
Solving the NPA problem isn’t rocket science. First, the idea of giving loans to companies, instead of individuals, needs to go. India need not ape other countries and give loans to vague entities. What’s the need for tribunals for loan recovery when the matter is crystal clear. In the case of small borrowers who default, their property is confiscated and sometimes they are put in jail as well. Big borrowers get to bargain, as Mallya shows.
Also, before the loan is sanction, all assets of the loanee should be hypothecated to the lending bank. In case of large loans, only one Government bank should be involved. There should be no debt writing off, and there should be a physical verification of the pledged property to confirm that it actually exists on the ground, not just on paper. This will end the Government’s charity system of giving money to non deserving people. Details of all bank accounts, assets and properties above a certain amount, both in and outside India, should be part of the documents submitted to the banks.
In case of disputes, the aggrieved can approach the High Courts or the apex court. All other adjudication bodies should be abolished. Above all, the passport of big borrowers should remain with the lender, so that in case of default, the loanee doesn’t escape to foreign shores. By following the above suggestions, the Government will find it is possible to tackle the NPA problem and save the common man from theft.
