Trust , interest and satisfactory services are the blood, breath and food of the banks and other financial institutions to attract, gain and retain depositors and the prospective borrowers. While as saving bank account holders normally happen to be average or middle rung wary of or skeptical of plunging into joint ventures, the borrowers are either the needy to conduct their both ends meet or the dare-devils folding sleeves to establish their own ventures. The banks procedurally lend against some mortgaged movable or immovable property and guarantees lest the borrowers should turn default to be tracked upon. Still as a key requirement of system banks and financial institution create some reserves out of profits to ward off any eventuality of bad debts on any account so that financial health of the institution does not break down beyond recovery to insolvency and finally to liquidation. With the change in the benchmark of huge volume of deposits to lendings as a performance indicator banks offered more loans/advances to the beseechers either of their own or on government initiatives terming the loanees as assets in modern banking terminology. Some of these assets do not perform well with the result they become defaulters in repayment of loans called non performing assets nowadays.
The gross ratio of non-performing assets has been on continuous rise from 2.7 percent in 2011 to 3.4 percent in 2012, 4 percent in 2013, 4.3 percent in 2014, 5.9 percent in 2015 with a quantum jump to 9.2 percent in 2016. From Rs.2.75 lakh crore in public sector banks as on 31-3-2015 the NPAs stretched to more than two and half times by mounting to Rs.7.33 lakh crore by the end of 6/2017. In public sector banks the State Bank of India has the highest NPAs of Rs.1.86 lakh crore and the ICICI Bank in the private sector tops the list with Rs.44,237 crore by the end of September 2017. A report by CARE ratings reveals that among BRICS countries India has the highest level of NPAs and ranks fifth on the list of countries with highest level of NPAs on the global scale. Lavish lending/excessive consumerism, lack of sufficient quality monitoring of assets, financial viability of the loanee/ marketability of the loaned project, improper sanctioning, insufficient or defective mortgage/guarantees, window-dressing or ever greening of loans, kite-flying, genuine cases arising force-majeure and wilful default by some unscrupulous elements are some of the causes leading to burgeoning of the NPAs. This has shaken the liquidity crust attracting the attention of the government to take some financial reforms to rescue the banks out of NPA crisis. Increasing the number of network of Debt Recovery Tribunals from 33 in 2016-17 to 39 during 2017-18 which will help reduce the pending cases , infusion of an unprecedented Rs. 2.11 lakh crore capital over two years of 2018 and 2019 and introduction of Financial Resolution Deposit Insurance Bill 2017 may be inter-alia. This Bill No.65 of 2017 containing 18 Chapters having 146 Clauses with four Schedules attached thereto, which is presently before the joint committee of the parliament and likely to be enacted in the coming session of the parliament, has, however, created ripples in the minds of the concerned for its Clause 52 under Chapter 10 which provides for bail-in option. The bill provides for establishment of a Resolution Corporation which will monitor the financial institutions and in case of their failure will come into action to resolve their issues. The clause envisages that notwithstanding containing in section 49, the Corporation may, in consultation with the appropriate regulator, if it is satisfied that it is necessary to bail-in a specified service provider to absorb the losses incurred or reasonably expected to be incurred, by the specified service provider and to provide a measure of capital so as to enable it to carry on business for reasonable period and maintain market confidence. Under sub-clause 3, among other things, bail-in provision means cancelling a liability owned by a service provider and or, modifying or changing the form of a liability owned by a specified service provider which the depositors had not earlier agreed upon.
Unlike bail-out position wherein the sick financial institutions are remedied by bringing money from outside, in bail-in situation the internal structure of the financial entity is restructured in a way so as to make liquidity available within the institution itself. Thus the Corporation in consultation with the appropriate regulator is empowered to lay hands on deposits of the customers in a financial entity to come up with the losses and make the entity continue its business. Laying hands on others’ money for no fault of theirs’ is unheard of in any moral or legal standards people are familiar with so far. While the economic scientists, financial and legal experts are analysing the incidence and impact of the bill on the deposits, customers in their own ordinary common sense feel tizzy and laden with doubts regarding ownership and security for their moneys held under saving bank accounts earned from the sweat of their brows. If the bill happens to be enacted in the extant form, it will not leave the mode of deposits and the mood of the depositors unaffected with resultant change in the quality and quantum of liquidity in countrywide financial institutions concerned.
Experts on the subject call it as a safe passage paved by the government to use & transform the deposits of their own belonging to some other people. It is fait accompli that banks pay the depositors interest at a predetermined fixed rates and not beyond that even if financial institutions might have earned many times more. When they enjoy profits they should bear losses as well without transferring these to non-contributors say the aggrieved voices. For the genuine anger and concern brewing among the people, the government, Reserve Bank of India and the financial institutions concerned should ponder over these financial concerns with preventive and curative measures lest it should reverse the premises of trust, interest and satisfactory services to which the banks owe their origin, evolution and sustenance. Pain inflictors are to be atoned for and peace loving pigeons should not get hounded after as goes the law of natural & universal justice.
[The author is a former Sr. Audit Officer working as Consultant in the A.G’s Office Srinagar.]
mohammad jalaluddin2012@gmail.com.