"From Independence to 2008, Indian banks gave out Rs 18 lakh crore as loans. In the next six years, the amount touched Rs 52 lakh crore," said Prime Minister Narendra Modi on 1 September 2018 while inaugurating the India Post Payments Bank (IPPB). This is not the first time that Modi has highlighted this indiscriminate and mindless surge in public sector bank (PSB) lending, bulk of which were for industrial and infrastructure projects.
This writer, too, has been of the view that PSB’s never were ideally placed to bankroll infrastructure and other long-term lending. What makes Modi’s remarks ominous for the nation is his assertion that during the 6-year period, loans were sanctioned through what he humorously calls phone banking---behest lending at its worst.
Loans of this magnitude--Rs 34 lakh crore---should have transformed the nation by now even after granting a lag between investment and its impact on the economy. But what this reckless lending has done is to lay waste the banking sector with gross non performing assets (NPAs) standing at Rs 8,40,958 crore in December 2017, led by industry loans followed by services and agriculture sectors.
The gross NPAs or bad loans of scheduled commercial banks as on 31 December 2017 due to loans to industry were at Rs 6,09,222 crore, accounting for 20.41 percent of the gross advances.
This is unacceptably high pointing to a festering problem plaguing the PSBs in the country. With PSBs under the thrall of the government of the day, there is always temptation to make them dance to its tunes as evident from the alleged missives from the prime minister’s office during UPA II recommending further loans to Kingfisher Airlines despite its repeated and massive defaults.
It redounds to the credit of the Modi government that there hasn’t been a single behest lending nor any fresh NPA created during its tenure thus far. That private sector banks in India have bucked this trend is significant as it testifies to the fact that power brokers and influence peddlers took liberties with the faceless PSBs thus raising questions about the very wisdom of bank nationalisation started in 1969 by the then prime minister Indira Gandhi.
Even without behest lending souring their fortunes, commercial banks would in any case have courted trouble by lending long-term mainly to infrastructure projects notorious for their long gestation periods. Steel and power companies which figure prominently in the list of companies being sold by the National Company Law Tribunal (NCLT) as well as highway projects are not commercial banks’ cup of tea given the inevitability of asset-liability mismatch bedeviling their finances sooner than later.
With dice thus heavily loaded against them, PSBs were destined to be in a mess. In the event, the shrill noise made by the Congress President Rahul Gandhi from time to time both in India and abroad about the Modi government selling out its soul to big industrialists for a quid pro quo sounds laughable and ludicrous.
It was the Congress that mollycoddled NPAs and its offshoot ever-greening of loans with schemes such as corporate debt restructuring, strategic debt restructuring, 5/25 and S4A schemes that enabled the banks to kick the can further, i.e. hide NPAs and bury their heads in the sand ostrich-like.
Once again it redounds to the credit of the Modi government and the RBI that all these excuses were rendered untenable with one stroke of the pen with the Reserve Bank of India (RBI) withdrawing all of them lock, stock and barrel in February 2018 and insisting on immediate recognition of NPA when its raises its ugly head.
Had the Modi government continued with its mollycoddling of the NPAs, it would have been business as usual with no concern for banks’ and taxpayers’ money remaining blocked forever in NPAs.
The Modi government indeed took the NPA bull by its horns. In fact its fight against tax evasion and crony capitalism, behest lending is acknowledged albeit grudgingly even by its detractors.
The vested interests hurt by this no-nonsense attitude of Modi are trying to hit back. It is sad that the Congress is throwing its weight behind them.
The Modi government has not only made banking inclusive with its Jan Dhan initiative but also made bank finances available for the grassroots people and those at the bottom of the heap with its Mudra Yojana initiative that has benefitted some 12 crore people with micro finance loans.
(The author is a senior journalist and tweets @SMurlidharan)
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Updated Date: Sep 02, 2018 11:34:12 IST