#NotEnough: Ballooning list of India’s top bank loan defaulters: Can RBI, FinMin, SC promise action?

Editor's note: AIBEA (All India Bank Employees Association) has clarified that it has wrongly provided the names of top accounts of Uco bank instead of top corporate defaulters' list. The error is regretted.

The precarious bad loan situation in India’s banking industry (Rs 4.4 lakh crore declared bad loans till December — mostly from large corporate defaulters) calls for strong actions not mere expression of concern and panic.

#NotEnough: Ballooning list of India’s top bank loan defaulters: Can RBI, FinMin, SC promise action?

Vijay Mallya got a favourable court order after United Bank tagged him wilful defaulter. AFP

But, unfortunately, the missing part is solid action on loan recovery from large corporate defaulters who owe thousands of crores of money to Indian banks, mainly state-run banks. These also include promoters who refuse to pay back even when they have the wherewithal to do so (wilful defaulters). Banks have so far tried to largely cover up the bad loan issue by postponing the problem till the RBI put a deadline of March 2017 for banks to clean up their balance sheets.

As a result, since December quarter, banks have started aggressively disclosing the NPAs on their books to comply with the RBI diktat. But, does this mean that all these banks have been covering up most part of their NPAs (non-performing assets) so far? Also, there have been huge write-offs on bank loan to corporates. According to All India Bank Employees Association (AIBEA), a union of bank employees, between 2001 and 2013, some Rs 2 lakh crore loans have been written off by banks. (Firstpost hasn’t independently verified this figure.)

There is an obvious question of how so much of NPAs come up on their balance sheets. Surely, this would not have happened overnight and just because of the general economic slowdown. Who is answerable for such a large build-up of stressed assets that has now pushed the banks to the verge of a crisis?

Traditionally, the chairmen of PSU banks duly passed on the provisioning burden (banks need to set aside money against loans where recovery has stopped) to their successors.

They did the same to their successors too. Why we haven’t heard an instance of former bank chiefs punished for poor performance and possible case of interested-party lending? Had it been private institutions, the CEO would have been sacked instantly.

Is the practice of covering up bad assets and showing healthier balance sheets for years to shareholders very different from what one Ramalinga Raju did in Satyam in 2009? What are the roles of the RBI, courts and the government in such cases.

Here are three logical questions to ask:

The RBI: Governor Raghuram Rajan has indeed raised a question on crony promoters who wouldn’t pay back the money even if they have the capacity to do so (wilful defaulters) and even dare the whole system by throwing lavish birthday parties and flaunting luxury cars in an obvious reference to India’s own Richard Branson, Vijay Mallya — the promoter of grounded airline, Kingfisher, who owes over Rs 7,000 crore to a host of state-run banks. The RBI governor expressing concern on wilful defaulters flaunting public wealth is welcome. But, beyond this, has the regulator taken any steps to deal with such defaulters? Also, didn’t the RBI know all these while about the huge hidden portion of NPAs on bank balance sheets?

The Judiciary: Corporate tycoons with deep-pockets have always found a way to drag banks to court rooms across the country for years and thus delay the repayment process. One classic example is Vijay Mallya of grounded Kingfisher Airlines. Mallya has used the legal system to his advantage to delay the loan recovery by banks.

Before the SBI finally tagged Mallya as a wilful defaulter in November 2015, the liquor baron had managed to force Kolkata-based United Bank of India to reverse its decision (to tag Mallya as wilful defaulter) getting a favourable court verdict on purely technical ground. The court ruled in favour of Mallya citing that instead of having three members, the grievance redressal committee of the bank had four members.

The Supreme Court’s ruling early this week seeking the details of large value loan defaulters from RBI in a sealed cover is welcome. But, why should be the benefit of confidentiality given to the ‘rich and powerful’ bank loan defaulters, since had this been an individual home, auto or personal loan defaulter, banks would have immediately initiated action against the individual exposing him in public. Can the SC initiate actions against wilful defaulters?

The finance ministry: As Firstpost noted in an earlier article, the RBI’s diktat on banks to clean up their balance sheets would see much dirt coming out in the form of sticky assets, which would also mean that the capital burden of these banks would increase multi-fold. Of the total bad loan stock of Rs 4,43,691 crore crore in the banking industry, about 65-70 percent is from the corporate sector.

In the last eight years, the government has infused Rs 90,000 crore in India’s 27 public sector banks. This fiscal year alone, the government has so far infused Rs 20,000 crore out of the promised Rs 25,000 crore. If the government doesn’t simultaneously initiate action on large corporate defaulters to recover thousands of crores of money they owe to banks, that would mean taxpayers’ money is used to bail out banks looted by cronies. Can the government promise that this wouldn’t happen?

Firstpost has been running a series of stories questioning inaction of authorities against large corporate defaulters — a major reason for the current bad loan crisis in the banking system. Here is a list of top bank loan defaulters with some of the state-run banks as on March, 31, 2015 as compiled by All India Bank Employees Association. This list is not complete since AIBEA has data only from a few banks. Some of the lenders which have large exposure to corporates such as SBI are not included in this list. (Firstpost hasn’t independently verified this list).

NPA table - Feb 19, 2015

For full list click here (Firstpost hasn’t independently verified this list)

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Updated Date: Feb 20, 2016 11:57:59 IST

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