#NotEnough: Rising NPAs, opaque CDRs give govt's ease of doing business policies an uneasy twist

The Reserve Bank of India (RBI) which has outwardly been frowning upon the under-reporting of NPAs by banks, while actually protecting their misdeeds, has now earned a serious reprimand from the Supreme Court (SC).

On Tuesday (16 February 2016) the SC directed the RBI to furnish, in a sealed cover, a list of companies that are in default of loans by banks and financial institutions in excess of Rs 500 crore or whose loans have been restructured under corporate debt restructuring (CDR) schemes.

In doing so, the SC has scuttled attempts made by the RBI’s counsel to withhold this information on grounds that it violates the commercial confidentiality of these banks’ clients.

The SC order was in the context of a public interest litigation (PIL) questioning loans given by HUDCO in 2003 to companies with dubious track records.

#NotEnough: Rising NPAs, opaque CDRs give govts ease of doing business policies an uneasy twist


A Firstpost expose of 8 January 2016, had highlighted, based on documentary evidence, how a company called B. L. Kashyap and Sons (BLKS), which made history for the largest ever Provident Fund (PF) evasion of Rs 593 crore, instead of being punished, was handsomely rewarded in December 2014, with a whopping Rs 840 crore of debt restructured at extremely favourable terms.

This is despite the fact that PF evasion is a serious criminal offence and both the CDR Cell master circular as well as RBI guidelines specify that companies found to be involved in any kind of fraud or diversion of funds should not be eligible for CDR schemes.

The expose had pointed towards the the RBI’s complete abdication of duty for the CDR Cell’s opaque decisions and great willingness to support dubious firms, by ‘falsely’ claiming that the CDR Cell did not function under it. False, since the RBI Act and the Banking Regulations Act give unfettered power to the RBI to regulate the actions of the banking sector as well as to call for credit information from all banking companies.

The expose further revealed that the RBI has never audited the CDR Cell, while additionally claiming that it did not know who did. Feigning similar ignorance in the PIL matter in the SC, the RBI’s counsel on Wednesday also denied having any information on the defaulters of loans as it was with individual banks. Calling this bluff, the bench, headed by Chief Justice T S Thakur, asked the RBI what business it was doing if it did not have information.

The RBI’s lackadaisical view towards the deliberate vaporization of a staggering Rs 7.6 lakh crore or more of public money, while externally acknowledging this as a huge economic impairment, gives an uneasy twist to the ‘ease of doing business’ policies of both the earlier UPA government and the present NDA regime and is a matter for greater scrutiny.

The RBI’s evasiveness and attempt to be economical with the truth continues despite the fact that in December 2015, the SC had observed that, "RBI and the Banks have sidestepped the general public's demand to give the requisite information on the pretext of 'Fiduciary relationship' and 'Economic Interest'. This attitude of the RBI will only attract more suspicion and disbelief in them. RBI as a regulatory authority should work to make the Banks accountable to their actions”.

The apex court had also pointed out that the RBI has a duty to uphold the interest of the public at large and was duty bound to comply with the provisions of the RTI Act and disclose the information sought by the people.

RBI governor Raghuram Rajan is widely acclaimed for having predicted the sub-prime crisis that led to the global financial crash of 2008 as also for cleaning up the banking system in India. It is impossible to accept that an economist of his training and experience, who regularly bemoans the impact of stressed assets on the economy, could be this oblivious to the inner workings of the banking system that actively facilitates this deliberate transfer of depositors money to dubious corporates.

Besides, bad debt had already become an issue as far back as 2012, with corporate loan restructuring surging 156 percent to a record high in the financial year that ended March 2012 as slowing economic growth proved a drag on borrowers' ability to repay debts.

In August 2012, then RBI deputy governor KC Chakrabarty publicly acknowledged that corporate loan restructuring, which favoured state-owned banks and large corporate borrowers, was not being conducted in an objective manner.

Despite this early disclosure of what was to come, and the large amounts of money involved, no one has ever been served a jail sentence for doling out public money or for defaulting on the payback of debt. This amply demonstrates the non-seriousness of the entire system in recovering these bad loans.

Civil institutions like the RBI are entrusted with the responsibility of safeguarding India’s economic viability, and abdicating that responsibility endangers both national stability and national security. They must be made accountable.

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Updated Date: Feb 19, 2016 11:30:07 IST

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