Saturday, 20 February 2016

India’s next mega scandal: Bad bank loans (Pakistan Observer)

Geopolitical notes from India
M D Nalapat
Friday, February 19, 2016 – The “Indian Express” was a newspaper known throughout India for its feisty reportage, even standing up to Indira Gandhi during the 1974-76 Emergency period, when almost all the freedoms enjoyed by the people of India got extinguished. However, subsequently the newspaper took on a new avatar, with outsize influence reportedly being wielded in its columns by individuals high up in the power elite such as Palaniappan Chdambaram, the Finance Minister of India during much of the period when Manmohan Singh was Prime Minister (2004-2014). Chidambaram is best known as the father of one of the most successful businesspersons in India, Karthi Chidambaram, who within a decade has joined the ranks of the super rich, being exceptionally proficient in discovering and making lucrative investments across the globe. The many trades of Karthi and the punters and brokers close to him need to be exhaustively studied by students of finance so as to discover the secrets behind the phenomenal success of the group in its trading activities, especially on the National Stock Exchange (NSE).
His unprecedented success has made the youthful Karthi talked about in hushed reverence by stockbrokers in Mumbai and Delhi, in particular for the unerring way in which he appears to have chosen winning positions on the spot market. His influence in Singapore, Dubai and Mauritius is known to be substantial. Of course, any link to his success and the fact that his father was Finance Minister must be taken as mere coincidence, and admirers of Karthi say that his success would have been on the same scale even if his father had been in a lesser position. Returning to the Indian Express, it would appear from its columns that the newspaper has recovered much of the élan of the past, with investigative reports appearing regularly, most recently on the writing off of loans amounting to Rs 1.14 lakh crores (2013-15) by public sector banks. Fortunately for the Union Ministry of Finance, the steep fall in oil prices from $ 140 to $ 28 a barrel has given the cushion needed to underwrite such massive write-offs, as less than a tenth of the benefit of the lower oil prices has thus far been passed on to the consumer, even though petrol and diesel prices were supposed to have been decontrolled and reflect market conditions.
There has been much tough talk about bank defaulters from Reserve Bank of India (RBI) Governor Raghuram Rajan, who is building up his resume by indulging in monetary experiments which will undoubtedly form the staple of classroom lectures when he returns to the US in a few years time. However, actual steps to punish the guilty within both corporatesas well as the banking system seems to be modest. Instead, the RBI has thus far succeeded in keeping secret details of just who the big defaulters are, and the extent to which such depredators are still getting access to massive bank loans even while defaulting on old loans. Certainly there are companies that have had loans go sour because of factors beyond their control, but there are also companies whose managements have systematically siphoned off (shareholder and bank) funds by over-invoicing imports and under-invoicing exports.
Under a brilliant jurist, Chief Justice T S Thakur, the Supreme Court of India has ordered the Reserve Bank do reveal the names of the top defaulters,. and it is hoped that this order will be complied with, as the public have a right to know just who the individuals and corporates are who have denuded them of so much wealth, without any visible efforts by the RBI at holding them or the bank executives who are their accomplices accountable. Prime Minister Narendra Modi has several times talked of his determination to stamp out corruption, and it is expected that he will order the Union Finance Ministry to ensure that the assets of the principal defaulters be seized and sold rather than follow the traditional practice of having the taxpayer pick up the tab.
Fortunately for the major defaulters, they have as many friends in the Opposition benches as they have in the Ruling side, which is why there has been so little political blowback to the reportage of the massive write-off of bank loans in just a few years. However, these days Civil Society is slowly emerging as a force for change, and it is inevitable that the bank write-offs will become a staple of the public discourse in the coming months. Prime Minister Modi, who won millions of votes because of his reputation for honesty, will need to move swiftly and decisively in the matter, including taking action against those who have given too long a rope to the mega defaulters, as otherwise his government will get scalded by the heat over the Rs 1.14 lakh crore bank loan write-offs to individuals who live the lifestyles of maharajahs, mostly abroad, with personal yachts, ets and villas where they entertain VVIPs with the cash they have borrowed and never intend to repay. For the moment, the spotlight is on the RBI, especially its tough-talking Governor. Will Raghuram Rajan match his words with action or will he follow the example of so many of his predecessors and try and give a free pass to those who have looted public funds?
Under Rajan, bad debts of India’s banks has grown significantly even while manufacturing has slowed because of his tight money policy, a series of measures suited to the US (the country in which he has spent almost all his adult life and to which he is expected to return after his stint in India). The RBI needs to take the lead in ensuring that the taxpayer not be made to pay for the follies of the public sector banks, which have made loans that are demonstrably bad and continue to do so. Raghuram Rajan has to ensure that the assets of the big defaulters be taken over and sold to cover the immense liabilities they have piled up, and which are silently being written off by bank managements that need to be brought to account for this in the years to come.
—The writer is Vice-Chair, Manipal Advanced Research Group, UNESCO Peace Chair & Professor of Geopolitics, Manipal University, Haryana State, India.


  1. Dear Mr Nalapat:

    Happy to read your blog focussing on a critical issue the nation faces - public deposits misused by the custodians like banks in the name of providing safety and return to the depositors and savers as well as for helping investment and growth of the nation by EFFICIENT deployment of the deposits.

    But the efficiency expected is sub-par due to the following:

    1.There is no job insecurity in PSU banks

    2.They collectively hide mistakes done by their colleagues, and therefore hardly any internal punitive action

    3.Lack of knowledge and lack of initiative to learn- as job-security does not call for the same - this impacts valuation of securities/mortgages,inspection quality etc.
    4. Great escapist from trouble and issues and tries taking shortcut by somehow transferring the NPA to DRT or Civil suit.
    5.There is no penalty on banks for clogging the legal system with suits which can be resolved by sitting with borrowers over the table.
    6.Banks try blaming Courts and civil authorities regarding delayed justice but they should be taken to task for loading the justice system and leaving hardly any time for justice for AAM ADMI.There is nothing wrong when a DM ask a bank why DM should help as the loan was not given asking first the DM -pl refer to recent widely reported case of J&K Bank and a Civil Servant.
    7.Crores of dues BY bank to its vendors and suppliers not even reflected in bank balance sheets, as the banks do not even make PROVISION for their dues.Two million(!) recovery agents in this country will vouch for this as banks are sitting with hundreds of crores of dues of these small guys who has dedicated for recovery of bank dues.On one hand they account for the recovery made by these agents as NPA resolved by the banks and on the other hand keeps sitting for settling the service charges of these agents and force them to survive thru unwarranted means!This needs immediate attention.There is corruption even in settling these bills of recovery agents.
    8.The priorities of PSU bankers are changing - more interest in selling mutual funds and earn incentives and foreign trips rather than stopping slippages in an account.If your salary is Rs.10 Lacs from bank and Mutual fund commission of Rs.10 L from a bank subsidiary,where will the employee focus on?Mind it - if the chief manager manager makes Rs.10L in commission from a mutual fund subsidiary of the bank(???) - there is also proportionate earning for his controlling authority,DGM,GM and CGM.Under such scenario why should one be bothered about NPA, as there is no penalty for creating bad debt on his salaries or commissions.
    -The demand for ESOP by PSU banks is highly retrograde as this should be addressed only after issues of conflict of Interest of bank employees are addressed.
    -Wish Modiji's great idea of Jan Dhan Yojna collection of Rs.15,000/-crores were protected by creating Lakshman Rekhas for the bankers not to mis-use and create bad debt further!

    More later.

  2. Dear Nalpat
    It is misfortune of the country that we have a Lawyer FM who is not an economist nor a politician.He is not a grass root leader and unaware of the peoples aspirations.Arun Jaiitely is an unelectable Politicians who came to Politics by his blackmailers tactics.He could have allowed unearthing scams in 2014 June when he become FM of a great nation and a Great PM.He didn't consulted the trade bodies before implemneting GST in India by force with a crook INFOSYS as the content provider for the GST returns.He didn't consulted not checked the scheduled rates of taxes of various items of the states before imposing taxes and later withdrawn same when people started raising revolt against party govt and PM.It is our misfortune that PM never dared to replace him although a series of allegations against him raised by supporters of PM.But for PM he is a nonentity in Politics.He made him RS MP from Gujarat and now made him his DEPUTY PM with all powers vested in him and he abused his powers for slaying hs own party.Middle class are crying for his blood but Modi as power drunk not seeing anything against him.WE have elected a PM with innovative out of box ideas methods and visions but in last 4 years seen that he a failure in all aspects.He could have been revolutionized the whole administration by his open stand on corruption nepotism in UPA era.But helped them hiding their crimes by bad advice from a crook lawyer FM.Now time is very short as election si due for March 2019 and in this one year he ought be cruel brutal on all corrupted leaders of congress to earn goodwill of his supporters.Don't be overconfident with a 11 crore workers tag.They are simply well wishers supporters and when they see that you are cheating them they will dislodge you from the highest pedestal of power.DENATIONALIZE ALL PSB,IMPOSE RESTRICTIONS ON SWIFT METHOD OF TRANSFER OF BANK FUNDS.

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