No Relief

The crisis ridden banking sector in India is persistently sounding alarm bells for the economy. Indian banks' gross non-performing assets (NPAs), or bad loans, stood at Rs 10.25 lakh crore as on 31 March 2018. Public sector banks (PSU banks) have written off non-performing assets (NPAs) worth Rs.1.20 trillion, an amount that is nearly one-and-a-half times more than their total losses posted in 2017-18, according to official data.

The country’s largest lender State Bank of India alone has written off bad loans of Rs.40,196 crore, which is nearly 25% of the total write-offs during 2017-18. This was followed by Canara Bank (Rs 8,310 crore), Punjab National Bank (Rs 7,407 crore) and Bank of Baroda (Rs 4,948 crore). Industry leader, the State Bank of India (SBI), which tops the NPA chart, has logged an increase of Rs 24,286 crore in bad loans in the March 2018 quarter to Rs 2.23 lakh crore. The Nirav Modi scam-hit Punjab National Bank (PNB) has reported the maximum rise of Rs 29,100 crore in gross NPAs to Rs 86,620 crore in the March quarter.

Among private banks, the gross NPAs of ICICI Bank and Axis Bank have risen significantly. ICICI Bank's bad loans pile grew by Rs 8,024 crore or 17.4 percent in the March 2018 quarter to Rs 54,063 crore; Axis Bank's widened by Rs 9,248 crore or 37 percent to Rs 34,249 crore in the March 2018 quarter from Rs. 25,001 crore during the December 2017 quarter. Most of the public sector banks and many of the private sector banks have registered huge posses.

As much as 90 percent of the NPAs are on the books of government-owned banks. The colossal write-offs of NPAs and consequent losses have pushed down many banks below the stipulated capital adequacy requirement while some are on the brink. The situation has prompted the Government to go for massive capital infusion of banks. Taking note of the alarming bad loans situation, the government, last year, announced a Rs 2.11 lakh crore bank recapitalisation plan to pull out state-run banks from the mess.

The funds requirement for capital infusion of banks or other public sector institutions does not form a part of the provisions made in the Union Budget. Thus the Government will have to find out additional sources of funds for capital infusion / strengthening of banks. Since the entire funds requirement cannot be met through issue of equity shares due to regulatory caps /  restrictions, the Government will be forced to raise money through other means. The first causality will be taxation. Thus the Government will be compelled to raise various taxes, thanks to the surge in NPAs. Or in other words, the ultimate victims of bank’s bad loans are the people.

According to Government sources, there is no respite in the NPA position of banks even in the current financial year. NPA menace warrants harsh steps not from the curative angle alone, but from the preventive angle. But the action forthcoming from the authorities on both curative and preventive fronts is no match to the enormity of the NPA issue confronting the banking sector. The very slow process involved in seizure of assets of the borrowers and tardiness in investigation into staff lapses / collusion, reluctance to publicise the names of corporate defaulters etc. in spite of the strong sentiments expressed by several quarters are all factors which stand in the way of banks regaining confidence of the people. The causative factors behind the genesis of corporate NPAs should be studied and publicized without any veil. Banks should resort to all possible measures for cost reduction also to improve their profitability.

All said, putting the burden of NPA write-offs, caused mainly by the corporate defaulters, on the common man in the form of taxation is totally unjustified. And, the corporate defaulters should not be left free to enjoy with public money.