While Indianbanks are among the worst in the world in respect of NPA, recent disclosure of’writing-off’ outstanding loans of Rs 68,607 crore of 50 willful defaulterscreated a storm, thanks to COVID-19 crisis which overrides all other newsnowadays. This disquieting information received by aN RTI activist from RBIshocked people at the time when Modi Govt is endeavoring to mop up resources tocombat the pandemic coronavirus. More so, it is also because of the names ofthe notorious financial fugitives like Nirav Modi, Mehul Choksi and VijayMallya who, the Congress alleged, are closer to the PM. Nirav Modi & hisuncle are involved in Rs.11, 000 crore PNB fraud and are Fugitive EconomicOffenders.
In normalcourse, this news would have generated an acrimonious debate especially on TVchannels putting the Govt on mat for ‘loosening the noose around 50 top willfuldefaulters’. But pandemic Coronavirus has sidestepped this ‘financialcontroversy’. The news came to light a fortnight after freezing of DA/DR of Govt employees and pensionersreportedly to the tune of Rs. 85.68 thousand crore up till July 2021 in view ofburgeoning fiscal deficit and huge funds needed to strengthen healthinfrastructure in the fight against COVID-19. As the news published, RahulGandhi thought it to be right subject to corner PM Modi for his ‘largesse’ tohis ‘mighty capitalist friends’ and hebusted out as usual, off the mark, thinking it as “waiving-off” loans.
There aremany ‘Rahuls’ among us thinking that writing-off and waiving- off have similarmeaning which actually is not. While the nature of both the terms appears to besame but there is big difference between the two, at least in implication.
In financialmatters, ‘write–off’ is technical or prudential in nature. In layman language,a Non-Performing Asset (NPA) is a ‘bad loan’. Taking in to consideration allcircumstances of non-payment of instalments or interest thereof andnon-recovery of loan, RBI broadly defines NPA as “An asset, including a leasedasset, becomes non#-performing when it ceases to generate income for the bank.”It is in this situation, ‘writing-off’ is considered. It broadly means thatsuch debt is removed from Bank’s NPA list which nonetheless makes 100 %provision against the outstanding loan and doesn’t stop recovery proceedings orgive up its right to recover the loan. The RBI provides norms of four-yearprovisioning cycle and after full provisioning, the bad loan is written-off. Asand when the money is recovered in full or a part, it is added to bank’s profitand the provision kept in books too reduced to that extent.
The term’waive-off’ means total cancellation of bad loan without seeking its recoveryanymore. While ‘write-off’ is done bythe Bank concerned to bring about tax efficiency as per RBI norms, the waiving-offof loan is done by the Govt mostly as a relief measure in financial crisis likenatural calamities (droughts, floods, cyclones etc) to a specific category ofloanees who are left with no capacity to return it. The term ‘willfuldefaulter’ is used for the loan defaulter who has means to pay but doesn’tremit the loan, its instalments or interest thereof to the financialinstitution.
Under thebanking system, no unrecovered loan is left out without any record. Hence,in order to tally the amount in the balance sheet of the Bank, the loan ismentioned as ‘written-off’ but recovery efforts would continue.
There areincidents where a few influential business tycoons have left the country afterswindling huge bank loans with no intention to return or repay. They figure inthe list of ‘special 50’ whose loans have been ‘written-off’. This is the usualpractice with Banks to write-off ‘bad debts’ after a prescribed period. Arecord bad loan of Rs 2.54 lakh crore were reportedly written-off in 2019.
In fact,writing-off NPA is to give the Banks a facelift without the actual recovery ofbad debts. About three years’ ago, theRBI had ordered reference of 12 accounts having bad loans of Rs 3.5 lakh croreto the bankruptcy courts but hardly Rs. 40000 crore could be recovered. FormerRBI Governor, Urjit Patel, after abruptly leaving the RBI in December last year, had said in a lecturethat the dismal state of Indian banking system was a failure on the part ofbanks, the Government and the Regulator until 2014 that led to banks landinginto the current bad-loan mess and the resultant low capital buffers.
Once the RTIactivist has put RBI information received on April 24, 2020 in the publicdomain, Rahul Gandhi and Congress spokesman Surjewalla jumped to target PM Modicharging him of “waiving-off” the loansof Nirav Modis, Mehul Choksi and their companies. But after the FinanceMinister Nirmala Sitharaman hit back at Rahul Gandhi in a thread of 13 tweets,both Rahul Gandhi and Surjewalla preferred to retreat as they seemed to havetouched the hornets’ nest. While Dr. Manmohan Singh, whom Sitharaman askedRahul to consult on writing-off, opted out from the debate, Chidambaram came tohis defence a bit through a tweet.
Chidambaramsubtly diverted the debate by saying that ” The debate on waiver or write-offis academic. People who are mighty pleased are Nirav Modi, Mehul Choksi andVijay Mallya!” adding, “Rules are made by human beings. If a rule can be made,it can be unmade too”. It was quite loaded, admitting that rules are there butwhy can’t these be changed. Yes, amid the political slugfest, a valid questionwas raised as to why these rules can’t be changed? Even if the changes or the new law may notget the money back from the swindlers but at least, these would instill theconfidence of the people of India. Everybody including critics praises ModiGovt for enactment of Fugitive Economic Offender’s Act, 2018 & theInsolvency and Bankruptcy Code, 2016. India is more important than politicalinterests of political parties and their leaders who always try to scorebrownie points in exposing each other. Janata sab kuch janti hai.
Banks maytake refuge into the technicalities of the system to justify such actions butthe confidence of the people of India is shattered especially when they seenames of notorious fugitives. The people are fed with routine statements andloud assurances of leaders to bring corrupt and scamsters to book but inpractice there is nothing that can lift nation’s confidence. It is a publicknowledge that how some mighty economic fugitives had duped the banks withthousands of crores of rupees with all these rules and regulators and rightunder the vigilant nose of Govt agencies? How the action of writing-off NPA ofRs. 68607 crore going to satisfy the people of India or improve banking system?
It is no credit to Indian banks to figure among the worst in the world, and definitely in the BRICS bloc. As per CARE ratings, India beset with a 9.85% of NPA ratio ranks poor among BRICS countries. According these ranking, Australia, Canada, Hong Kong, Republic of Korea and UK with an NPA ratio of less than 1 percent are classified in first category followed by China, Germany, Japan, and USA, with NPA ratio less than 2 percent. A few developed European countries and some fast-growing developing countries like Brazil, Indonesia, Thailand, South Africa and Turkey fall next with NPA ratio of up to 4%.
In terms ofactual money, the NPA of Indian PSBs stood at Rs 7.27 lakh crore and reportedBank frauds at Rs. 1,13,374 crore as on 30 September, 2019. HigherNPA shakes the confidence of investors, depositors, lenders and impedesrecycling of funds, which in turn will have damaging effects on thepositioning of credit. The non-recovery of loans effects not onlyfurther availability of credit but also financial soundness of the banks.Instead of cleaning up balance sheets and subsequently showing higher profit,why can’t RBI and the Govt initiate pragmatic coercive measures to minimise NPAand prevent future loans turning into NPA?