NPA: Non-Performing (Modi) Administration
NPA: Non-Performing (Modi) Administration Wed, 13 Jun 2018

NPA: Non-Performing (Modi) Administration

The PM Modi-led government has been exposed. During its campaign for the 2014 general election, and thereafter, the stance of PM Modi-led government was for tough action against big loan defaulters “passed on by the UPA regime”, but the February 2018 notification of the RBI called the regime’s bluff. To understand the contention between the government and RBI regarding the notification, we need to first understand the reason behind notification.

From December 2017 to March 2018, gross NPAs of all banks has grown by a whopping Rs. 1.39 lakh crores, i.e. a rise of 16 percent, and stood at Rs 10.25 lakh crore as of 31st March 2018. The NPAs of Public Sector Banks (PSB) grew by Rs. 1.19 lakh crores, i.e. a rise of 15.4 percent, during this period. The RBI took a proactive step to counter such huge rise, and the February 2018 notification was in respect to this grave issue. The notification stated that all large corporates, which have defaulted on their loan repayments, will have to go for bankruptcy proceedings from 1st October 2018 onwards. Needless to say, despite getting a six-month heads-up, the corporates were unhappy with the notification as this would hurt their credit ratings and, consequently, future borrowing prospects. The RBI’s notification had the potential to call-out false claims of many corporates, but, unfortunately, the PM Modi-led government, staying true its character, decided to side with corporates, and, hence, the contention with the RBI. A government for the ‘suit-boot’, indeed.

It is believed that the re-emergence of the idea of a ‘bad bank’ is in response to this tussle between the government and RBI. A ‘bad bank’ provides the PM Modi-led government more room to manoeuvre, as they will have less discretion if insolvency proceedings go to National Company Law Tribunal (NCLT), which has specified guidelines to follow. Another fear among the professionals and government is that once the power companies go to NCLT, they will not have many suitors. Whereas, in case of a ‘bad bank’, the government can coerce a Public Sector Undertaking (PSU) to invest in the debt-ridden companies, like it did with ONGC – leading to the decline of 90 percent of its cash reserves.

Several other issues mar the banking sector, which the government has either failed to resolve or made worse. Piyush Goyal, who already heads important ministries such as railway and coal, has been handling the additional responsibility of the all-important finance ministry too. The Banks Bureau Board (BBB) has been all roars and no claws. It has not been provided with adequate powers to fulfill its purpose. PSBs, taken collectively, posted a loss of Rs. 85,371 crores during 2017-18, after posting a paltry profit of Rs. 474 in 2016-17. Punjab National Bank, reeling under the Rs 14,000-crore Nirav Modi scam, posted a net loss of Rs 12,282 crore in 2017-18 fiscal, after a profit of Rs 1324 crores in 2016-17. The larger and successful banks have refused to be part of any future mergers, as pointed out by the present chairman of SBI.

The PM Modi-led government, which surely has loyalties towards ‘the few’, has been clueless with regards to NPA profit. The government finds itself in a helpless situation, as they are unwilling to address the basic causes of the NPA crisis since that would mean being strict towards a few corporates, who hold the majority of the NPAs. The NPA crisis is severely hurting the banking sector, especially the PSBs, as can be seen by their dismal performances in the previous fiscal year. The primary reason for the inability of PSBs in handling the NPA crisis is excessive government interference, and that also to serve the needs of the ‘few’. It is no secret that if not addressed at priority it will have severe implications for the Indian economy, but the question arises, does the present regime has the political will and clear conscience to take those steps?