RBI’s data on banks’ bad loans disturbing–Deccan Chroicle–28.12.2017

The latest Reserve Bank data on the precipitous drop in recovery of bad loans by banks is of concern as in simple terms it means loot of the people’s money.

The latest Reserve Bank data on the precipitous drop in recovery of bad loans by banks is of concern as in simple terms it means loot of the people’s money. It also impedes banks’ lending ability and thus affects growth of companies, specially in the small and medium sectors. This has been known for years, yet the situation only worsens, instead of improving. The banks operate on the money people keep as savings, and in the year ending March 2017, public sector banks wrote off `81,683 crores in bad loans against `57,586 crores the previous year. This is a huge jump of 41 per cent. It means that the government dipped into the people’s savings to wipe out these loans. The defaults of a few big borrowers amount to over 70 per cent of bad loans, according to the All-India Bank Employees Association. Most of them are in the steel and infrastructure sector.

This raises a moral issue: is it fair that people of limited means should help fatcat borrowers wriggle out of paying back their loans. Even if their failure to repay is in some cases due to the government’s policies, it still doesn’t justify the misplaced generosity of loan waivers. The total bad loans amounted to `2.86 lakh crores in 2016-17.

The RBI can’t escape its responsibility for these bad loans as its representative sits on the boards of PSU banks. Merely red-flagging possible defaults after onsite inspection has little meaning. The central banker must be more proactive. Interestingly, India’s NPAs are the highest among Brics nations. Brazil and South Africa have a ratio of 3.69 per cent and 2.83 per cent respectively, according to the chief economist of a ratings agency. The only redeeming factor is that India is better off compared to Spain, Portugal, Greece, Italy and Ireland. China’s ratio of bad loans was just 1.75 per cent in 2016’s second quarter.

Of equal concern is that the government is pouring in Rs 2.11 lakh crores into these banks as recapitalisation funds in the next two years. It looks like a case of good money chasing bad, and the only saving grace is that the government has abandoned its earlier devious scheme of making the depositors pay for losses incurred by banks. One hopes that when the government recapitalises these banks, it puts stringent conditions to ensure that this money too isn’t frittered away, and more non-performing assets created. It’s a matter of concern that even while the issue of bad loans is being discussed, newer NPAs are being created. It’s hoped that from now the government won’t indulge in such suicidal economic policies like demonetisation, that almost brought business to a standstill and had a devastating impact on the rural economy, where most transactions are still in cash.

via RBI’s data on banks’ bad loans disturbing

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s