............An Honest View of Learned Bankers


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You have an infection ... You leave it alone. You don't treat it. You diagnose it badly. Guess what? Even the strongest parts of the body will get infected. That's what's happening in BANKING IN INDIA today. The infective  medicines , and obsolete, junk   palliatives of the west is being prescribed by Finance ministry, such as the recent missive setting of holding companies and consequent consolidation of PSU banks  under the guise of global status   to cure the NPA’s spreading throughout is akin to killing the patient.


 No drastic measures such as confiscation of the properties of willful defaulters, imprisonment, and blacklisting for all future advances and loans is attempted by the government. Although there may be some cases where for genuine reasons advances have become NPAs, in most cases as we explain in this chapter corporate borrowers turn defaulters wilfully.


The problem of NPA’s in banks is not merely an internal problem of banks, their efficiency and what have you. That the NPA levels have risen despite Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest act is because of "faulty" economic policies. The suspension of the planning process, the curtailment of public expenditures, and drastic reductions in investment demand are hurting the growth of the manufacturing sector and breeding NPA’s. The government has shown no awareness of this structural malady afflicting the economy. The measures as being "in line with the government's medium-term goal of privatising the public sector banks." It would be a disaster for the Indian economy. This is dictated by the international multilateral agencies.


According to a study commissioned by industry body ASSOCHAM, The net non-performing assets (NPA’s) of the banking sector in India are increasing at an alarming rate and may cross Rs 2 lakh crores for the fiscal year ending March 2013 from Rs 1.57 lakh crores as on June 30, 2012.Also, banks’ restructured advances would also be as high as about six per cent by March, 2013.


To put it very succinctly the NPA due from Indian Industrialists is equal to economic output of 48 poor countries.

The study titled ‘Growing Heat of NPA’s on Banking Sector’ released by RBI Deputy Governor Dr K C Chakrabarty at a function said the continuing pressures on Indian economy would result in pushing the NPA ratio from 2.94 in June, 2012 to about 3.75 by the end of the current fiscal.

A plethora of issues like rising trends in stress assets, increased provisioning, issues of asset quality and challenges of requisitioning additional capital to keep growing business together with burgeoning twin deficits of fiscal and current accounts have been adduced by the protagonists of” restructuring” for contribution to this dismal situation of increased NPA levels and falling bottom line,” according to the study.


The report further states besides, the credit offtake has also sharply tanked due to various issues like environment-related approvals, land acquisition and other such issues. Existing exposure of banks to poor performing sectors like power, aviation, highways, micro-finance institutions (MFIs), ports, telecommunication and others have lead to high levels of stress assets.



Another reason is attributed by the captains of the industry for the burgeoning NPA is the growing inability to raise adequate equity in a time-bound manner due to high volatility and depressed condition on capital markets which is straining companies’ balance sheets and financial flexibility of players in vulnerable sectors like infrastructure, construction, iron and steel, textiles, engineering and others, which has resulted in increased likelihood of restructuring.


They expect the government as in the past to further liberalize restructuring norms to give adequate financial support as well as reasonable time-frame to restructure the debts including concessions in interest rates and other reliefs. Further, the banks must support all reasonable restructuring proposals to enable the industries to restore their activities,” the Assocham report added.


So it is incumbent for us to analyze why the mechanics of this mendacious   NPA menace in the banks, despite huge budgetary support in the form subsidies to corporates and why it has mounted in geometric proportions over the reform period despite restructuring, one time settlements, waivers, and actions as per SAFRESI often reported in the media by the government time and again, to expose the root cause of increase in NPA’s. While the simultaneous dole packages of thousands of crores of rupees are declared by the government to save the sagging big industrialists, the vast unorganized sector is being deliberately bypassed in a state of deepening slowdown. There are about 58 million enterprises in the non-firm unorganized sector, each with investments up to Rs.25 lakh and fewer than 10 workers, contributing to about a third of the gross domestic product. This is the figure supplied by the National Commission for Enterprises in the unorganized Sector (NCEUS). While the fate of these units is intermeshed with that of large and medium industries, their credit needs in the current severe crisis are deliberately ignored with all attention focused on the big bourgeoisie caught in the maelstrom of present global crisis. According to the NCEUS, enterprises with an investment of up to Rs.5 Lakh accounted for just Rs.59, 279 crores or 2.2% of bank credit as of March 2007. Those enterprises in the Rs.5-25 lakh category accounted for another 2.1%. What is worse, only 2.4 million of the unorganized units received credit from Banks, critically throwing the vast unorganized small and medium sector to a dire strait. On paper however, the RBI guidelines allow banks to sanction loans up to Rs.5 lakh without collateral. Such reluctance is the outcome of banking policy under the LPG regime. Indian state and governments have so-long mimicked the capitalist centers of the world substantially fallowing speculation-based growth allowing FIIs, various toxic instruments to serve the economy for a small section of rising middle class by allowing enormous leverage to the MNCs, World Bank and other foreign institutions to control the economy.



Subsidies to big industry


All along, we have been focusing on reducing the subsidy outflow to the weaker sections, without looking at reducing the subsidies enjoyed by the very rich. Often we believe that giving subsidies to the very rich by way of near free resources will result in cheaper manufactured products or offered services. This is completely untrue. In fact, those who get these resources are the ones who are selling their manufactured products much higher than international prices by getting themselves several policies put in place to protect their pricing power

While the neo-liberal programme condemns subsidies such as those on food and fertiliser, and the supposed subsidy on petroleum, it promotes an array of subsidies to the private corporate sector. These subsidies take various forms .interest rate cut is one of the forms.

There are large transfers disguised in form of sums owed to the State by the corporate sector which the State makes no serious attempt to collect. Large borrowers with 11,000 individual accounts accounted for as much as Rs. 400 billion of total bad debt of banks by 2001-02. Among public sector banks too high-value defaults involving 1,741 accounts over Rs. 50 million amounted to Rs. 228.66 billion. (Even these may be understatements, since banks tend to ‘evergreen’ corporate loans, providing fresh loans in order to prevent default.) may cross Rs 2 lakh crore for the fiscal year ending March 2013 from Rs 1.57 lakh crore as on June 30, 2012,despite, banks’ restructured advances would also be as high as about six per cent by March, 2013.



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Whereas banks frequently attach the entire property of defaulting peasant borrowers and even have them arrested, no such stringent measures have been taken with the big borrowers, and, unsurprisingly, efforts to recover bad debts have met with little success. Banks’ bad debts have been reduced over the last few years not largely by collection, but by lengthening the schedule of repayments, making provision for bad debts out of banks’ profits earned elsewhere, and infusion of capital by the Government into the public sector banks. Large uncollected tax arrears, amounting to about Rs. 390 billion on corporation tax and Rs. 200 billion on customs duty, excise, and service tax, amount to another implicit transfer to the corporate sector. 


A second major subsidy is tax concessions. One should keep in mind that a tax concession is no different from a subsidy: it is the equivalent of the Government returning to the tax payer a portion or the whole of tax payable by him/her. The total of tax revenue forgone on corporation tax, excise duty and customs duty was estimated at Rs 2.36 trillion in 2007-08, which was over half the total revenues actually connected under these heads in that year. (Apart from this revenue forgone on personal income tax was Rs 421.61 billion, which was 35.5 per cent of the revenues from individual tax payers. To repeat, the Survey’s opposition to State intervention in the economy is selective: It opposes such State intervention as protects the people at large from the ravages of the private sector; but it envisions a vastly expanded role for the State in micro-monitoring the people, wielding bureaucratic despotism over them, and using arbitrary methods to exclude large numbers from the meagre benefits some of them hitherto enjoyed. It is an “enabling State” for certain classes, a disabling State for the vast majority.


The Survey’s allergy to State subsidies too is selective. We usually think of a subsidy as a monetary grant given by the Government, but tax concessions by the Government to particular classes of taxpayers are no different; indeed, these concessions are termed ‘tax expenditures’. The revenue forgone on account of corporate tax concessions in 2009-10 was nearly Rs 80,000 crores, amounting to almost 13 per cent of all corporate tax revenues, and 16 per cent of corporate profits after tax (profits after tax were nearly Rs 500,000 crores, or 9 per cent of GDP). Further, it has been widely reported that a large part of the additional concessions on excise duties and customs duties in 2009-10 were not passed on by the corporate sector to the public in the form of lower prices, but simply added to corporate profits. Personal income tax concessions were nearly Rs 41,000 crores in 2009-10. The grand total of revenue forgone on corporate income tax, personal income tax, excise duty, and customs duty in 2009-10 is over Rs 500,000 crores, which is almost 80 per cent of the actual total tax collection in 2009-10, or 9 per cent of GDP


The Receipts Budget notes: “the amount of revenue forgone continues to increase year after year. As a percentage of aggregate tax collection, revenue forgone remains high and shows an increasing trend as far as corporate income-tax is considered for the financial year 2008-09 (assessment year 2009-10). In case of indirect taxes the trend shows a significant increase for the financial year 2009-10 due to reduction in customs and excise duties.” (emphasis added)


These are hardly the only subsidies to the corporate sector. Various types of subsidies and give-aways to the corporate sector include free land; zero-interest loans; privatisation of public sector firms/assets and natural resources at throw-away prices; allowing firms to ‘gold-plate’ (i.e., overstate the value of) investments on which they are to earn a guaranteed rate of return (e.g. Reliance investment in its gas fields); sale of licenses/spectrum for mobile services at below-market prices; failure to collect corporate tax arrears; failure to collect bad debts from defaulting firms (some of which debts are then ‘re-structured’); failure to collect various types of dues (e.g. private airlines’ fuel dues); construction/maintenance of supportive infrastructure (such as urban roads, which benefit the auto industry); and so on. For example, the Tata Nano is reported to have received a 9,750 crores loan from the Gujarat government at 0.1 per cent interest, exemption from 15 per cent value-added tax, waiver of stamp duty, and subsidised land. The subsidies come to an estimated Rs 30,000 crores over 20 years on a Rs 2,000 crores investment by the Tatas. Put another way, the Rs 1,00,000 car comes with a State subsidy of Rs 60,000, or 60 per cent.

A recent addition to the list of subsidies to the private corporate sector is the scheme for ‘Public-Private Partnership’ (PPP). in the infrastructure sector. The Government’s claim is that the PPPs allow the Government to “leverage” public capital to attract private capital, and thus undertake a larger number of infrastructure projects. The Planning Commission wants private firms to account for 30 per cent of the $500 billion infrastructural investment under the current Plan (2007-12), and half the $1 trillion infrastructure to be set up under the 12th Five-Year Plan (2012-17). However, the private sector will only enter the field if it receives an attractive rate of return, and as the Economic Survey 2008-09 admits,

Infrastructure projects often have high social, but an unacceptable commercial rate of return. These are generally characterized by substantial investments, long gestation periods, fixed returns, etc., which make it essential for Government to support infrastructure financing, through appropriate financial instruments and incentives. With a view to support infrastructure projects, the Scheme for Financial Support to PPPs in Infrastructure (Viability Gap Funding Scheme) was announced in 2004.... The scheme aims to ensure widespread access to infrastructure through the PPP framework by subsidizing the capital cost of their access. It provides financial support in the form of grants, one-time or deferred, to make infrastructure projects commercially viable. The scheme provides total Viability Gap Funding up to 20 per cent of the total project cost. The Government or statutory entity that owns the project may provide additional grants out of its budget up to further 20 per cent of the total project cost.

This, then, is a pure subsidy of up to 40 per cent of the project cost provided to the private investor, in order to make the project “commercially viable”! The scale of the scheme is enormous: the cost of projects completed, under implementation or in the pipeline comes to nearly Rs 7 lakh crores. (See Table below) Not all of these projects will receive ‘Viability Gap Funding’ (VGF) – or, in simpler words, subsidy – of 40 per cent; some will be compensated in other ways. (For example, the now-tainted firm Maytas, of Ramalinga Raju fame, was to be given vast real estate for commercial use as part of the Hyderabad Metro deal.) But very large VGF flows are already taking place, and commitments are being made for even larger sums.

Public-Private Partnership Projects in Central and State Sectors (as in Dec. 2009) (Rs. cr.)

Completed Projects

Projects Under Implementation

Projects in Pipeline







These projects are in highways, roads, ports, airports, Railways, power, urban infrastructure, and other sectors. Source: Planning Commission, Compendium of PPP Projects in Infrastructure, March 2010.


The latest Survey, while extolling the Public-Private Partnerships and according them a critical role in building infrastructure, ignores the glaring contradiction between its lectures against those subsidies which benefit the vast majority of people, and its active promotion of subsidies to the private corporate sector.


VGF payments are made upfront to the private entrepreneur at the start of the project work. Apart from this, annuities, or annual payments to bridge a shortfall in revenues, may also be paid to the private party, depending on the contract. A recent report by Gajendra Haldea, a senior adviser to the Planning Commission, has pointed out that VGF payments and annuities threaten to bankrupt the National Highway Authority of India (NHAI) in the next three years. The report criticises a Planning Commission committee which had cleared the NHAI’s plans, and points out: “The committee had endorsed a higher limit of 40 per cent of total project cost as VGF, which was introduced earlier as a part of the stimulus package. This could enable a concessionaire to transfer most of its financial risks to the exchequer.” The NHAI will incur an outgo of about Rs 50,000 crores in the near future, including Rs 25,000 crores on VGF payments, Rs 9,500 crores on annuities and Rs 7,500 crores on land acquisition.

Even under the pre-1991 economic regime in India, the ultimate beneficiaries of public sector infrastructural investment were the private corporate sector. The State took on low-return, long-gestation period, activities vital to the economy, and private corporations focussed on high-return activity, enjoying the benefits of cheap infrastructure. Such was the scheme laid down in Viceroy Wavell’s Statement of Industrial Policy (1945), on the eve of transfer of power; the same scheme is outlined in the “Bombay Plan” for India’s development chalked out by the top Indian bourgeoisie in 1944; and India’s Plans duly reflected this class logic. However, by virtue of its pretensions to popular legitimacy, the State was also unable to deny certain social claims of the people on that infrastructure, and so the people did obtain certain limited benefits from public sector investment. Now, however, the economic regime is more brazen and more rapacious: even though the infrastructure being set up continues to be primarily to serve the needs of the private corporate sector, the infrastructural sector itself becomes a channel of social surplus to the private sector.


The Haldea report, titled “Sub-prime Highways”, provoked a vituperative response from the Union Minister of Road Transport, Kamal Nath. The minister, who has announced plans of building an unprecedented 7,000 km of highways a year with a planned investment of Rs 3,70,000 crore, has termed the Planning Commission “armchair advisers.” However, a senior NHAI official admits that the NHAI might pile up Rs 85,000 crore of debt by 2012-13.


Of course, the NHAI’s subsidy spree is a bonanza to domestic and foreign corporations. (NHAI’s technical criteria for the larger projects in effect necessitate the participation of foreign developers/construction companies. The French bank BNP-Paribas has titled its September 2009 research report on the NHAI “India Transport Infrastructure: The World’s Largest PPP Playground”.) Note that the earlier quotation from the Economic Survey 2008-09 does not claim that infrastructure projects are necessarily loss-making. It says that though they have a high social rate of return, their commercial rate of return is “unacceptable” – that is, unacceptable to the private sector. The ‘gap’ that is being filled by various subsidies is the additional profit margin demanded by private capital – which wields control over the State. As we can see from this example, when we analyse more closely the concept of “market price”, to which the latest Survey assigns a magical role in the functioning of the economy, we find that monopoly capital and the State play a major role in constructing that price.

In the case of petroleum products and fertiliser, the corporate sector uses the banner of “market pricing” to set prices, building in a hefty profit. Whereas in the case of infrastructure, it abandons talk of market principles and draws on hefty subsidies, under the banner of “harnessing private capital in the cause of India’s Growth”. In both cases, even as ruling class intellectuals talk of the need for the withdrawal of the State from the economy, they obscure the fact that it is State intervention on behalf of the corporate sector that enables it to step up surplus-extraction.


While iron ore sells at Rs.6,000 plus per ton in the international market, those with captive mines are able to extract it at less than Rs.1,000 per ton. Similarly, coal costs less than 25 per cent of domestic prices to those who have captive mines and at a much lower percentage when compared to international prices. The same is the case with other resources like bauxite, limestone, river sand and granite. Resources are being made available at less than 15 per cent of international costs by the States and the Centre.

The people of India, to whom these resources belong, are forced to give them away near free at these cut rates by elected rulers, and they do not get the benefits of the difference between the market price of the manufactured product and the giveaway price of the resource. These virtual freebies to the rich are far in excess of Central and State deficits put together.

The time has come for those who are elected to represent and protect peoples’ interests to start market pricing resources that are now being away almost free to the very rich. This would solve all our fiscal side issues at one go and get us to double digit growth rate in quick time. This would go a long way in improving the quality of life of our people substantially. It would also help us get to interest rates on a par with the developed world.

There is dominant thinking in our policy framers that relaxing interest rates, greater policy incentives to the corporate world will spur the   economic growth, while it is true at some measures but it is not the whole story. The Gov't should remember it may be counter productive to its goal of inclusive growth. The accumulation of riches in few billionaires of India who constantly figure on Forbe's list tells it all. The pathetic social and development indices of our country, far
behind many of developing countries is an alarming situation. While finance minister gives audience to corporate leaders before budget, why not extend the same to grass root level social activists who seek to bring changes in much needed human development in India?

Indian state and governments have so-long mimicked the capitalist centers of the world substantially fallowing speculation-based growth allowing FIIs, various toxic instruments to serve the economy for a small section of rising middle class by allowing enormous leverage to the MNCs, World Bank and other foreign institutions to control the economy. The e Bank’s India will once gain has offered home loans at a concessional rate of for a limited period. It will also extended that to other consumer loan categories like automobiles. All this is to beef up the declining automobile and real estate markets. such “mortgage loan in order to bring the customers” is “for mimicking US mortgage lenders in the sub-prime market.”


Earlier, close on the heels of Barack Obama’s current round of huge stimulus of $787 billion , Mr.Pranab Mukherjee, then finance minister declared on 24 February, the third stimulus package by huge tax cuts for manufacturing companies, consumer durables, steel and cement, automobiles, SEZs, etc. The revenue loss of an estimated Rs.30, 000 crore in a full year is aimed to rescue the faltering business of corporate houses. Industry however claimed for another round of interest rate cuts to buttress such fiscal measures. The RBI will inevitably trim bench mark rates soon to support the pro-corporate UPA government policy. Already The real deposit rates are negative and the real lending rates at about 250 bps are much lower than the long-term average of 400 bps .


While such blatant pro-corporate generosity is all evident in the RBI policies. In our country as in most other countries, subsidizing the rich at the expense of the poor is commonplace. All advanced societies are nothing but systems perpetuating hierarchies of exploitation, where a select few wield power over the hapless masses.


In a recent speech, K C Chakrabarty, RBI deputy governor, accused banks of misusing the system, stating, "In the recent past, many unviable accounts were restructured by establishing viability only with some kind of financial engineering.”


Disguising NPA’s benefits banks in the short run as it helps them avoid making provisions out of their income for a possible default. But it only delays the inevitable as banks end up recovering lower than what they would have had they taken timely action. "Even with securities, recovery becomes difficult where the borrower does not have any intent to repay. This is because borrowers still manage to get a stay order.



(As at March 31, in Rs. Crores)


Bank Groups / Years

As on 31st March


Total Advances

Gross NPA’s




Per cent

Public Sector Banks
















Private Sector Banks
















Foreign Banks
















Source: Off-site returns (domestic) of banks, Department of Banking Supervision, RBI



     In a published report, the RBI attributes the rise in the NPA’s of both Public and Private Sector Banks to diversion of funds away from the original purpose for which they were granted, as well as willful default (or misappropriation of funds) by borrowers. That apart, adverse economic and market factors, ranging from recessionary conditions, regulatory changes and resource shortages to inefficient management and strained labour relations have impacted the health of businesses, and driven them to default on their loan repayments. Sometimes the banks themselves are to blame – delay in loan disbursement can throw a project off tract, and have a cascading effect on its viability and capacity to repay. Banks have also been known to take comfort in collateral, and hence not follow up diligently enough on loan dues. Were the market value of the collateral to drop, there is an immediate impact on the quality of the related loan asset.


In this constellation, it is OK to squash those that are even less fortunate than yourself and pay obeisance to the "mai baap" sitting on top. Our civilization, having survived unbroken for the last 4000 years has accentuated this problem. Moreover, the rich and powerful can and do buy any government and influence decisions. Perhaps a French Revolution every few centuries

wouldn’t be so bad for us!


Banking Sector Reforms and its Dangerous Consequences


Public sector banks in India have played a crucial role in mobilizing hundreds of thousands of crores of rupees worth of small savings from the common people and this enormous capital is expected to be disbursed by the government for priority areas like agriculture, small industries, rural electrification, development of backward areas, etc which are inevitably shown their backs by the comprador big bourgeois class or such profit grabbing institutions. The imperialist globalization programme pursued by the Indian governments since early 1990s imposed prescriptions in the name of ‘reforms’ in the financial sector to allow foreign investors, speculative finance, foreign banks qualitatively changing the structure of this sector. Indian rulers have time and again sung the refrain: financial sector reforms are irreversible. With the chanting of ‘liberalization, privatization and globalization mantra the RBI sponsored two reports – the Narasimham Committee reports of 1991 and 1998 – almost a reproduction of the substance of a confidential World Bank report of June 1990 titled “ India : Financial Sector Report : Consolidation of the Financial System”. These reports held the brief for the World Bank designs to remove all barriers for the entry of foreign banks and the progressive denationalization of the Public Sector Banks. The Narasimham Committee reports overturned the earlier declared policy of social objectives of public sector banks and all focus was concentrated on maximizing profits, strengthening the flurry of activities like the real estate business, speculative investments, IT sector, etc. that came to be highlighted as engine of growth story. It is little known that the country’s largest bank, the State Bank of India , 45 per cent of the shares went into the hanks of private hands, of which one-third were foreign by the end of 1998-99. This way of privatization continued in the name of restructuring of weak public sector banks. Simultaneously the quantum of NPA’s (Non Performing Assets.) i.e. the loans given away to corporate houses remaining unrecoverable skyrocketed.

Thanks to the modicum of democracy still operating in the country and fear of public opinion, strong resistance from bank unions, the government has found it difficult to accept the suggestion of outright privatization of the banking system. Therefore some of the above surreptious devices of back door denationalization have been adopted. The entire system is being turned topsy -turvy without any comprehensive study or social dialogue, except for the report of a committee which was tailor-made to secure financial sector and structural adjustment loans from multilateral agencies. The government (irrespective of who is in power) has charted out Blue print for privatization of PSU banks in teune with the above reports as under:




(as appended in the General Secretary Report of AIOBEU , 28th conference)


In the near term


1.     Reduce the budget deficit and start lowering the cash reserve and statutory liquidity requirements with the objective of bringing the combined ratio down to 30 percent in 3 years and subsequently moving to market determined interest rates on government debt.


2.     Recategorise immediately commercial bank lending to larger borrowers among small-scale industrialists and farmers, thus reducing the priority sector-lending target to about 20 percent.  Reduce further the priority sector-lending target to 10 percent in 3 years.


3.     Rationalise, introduce flexibility in / or liberalise immediately the following interest rates: development finance institutions long-term lending rate: export loans and mortgage; capital market debt issues; and accept the Agricultural Credit Review Committee’s [ACRC] recommendations for concessional lending rates.


4.     Give commercial banks operational autonomy immediately and recapitalise them as needed after a portfolio clean up. Introduce higher prudential norms, supervision standards and financial requirements. Improve legal procedures for foreclosures and sale or transfer of assets.   Allow competition by easing private sector entry and expansion.


5.     Allow greater financial and operational autonomy to developmental financial institutions. Introduce prudential guidelines and supervision system. Allow Private Sector entry in investment banking and increased private sector participation in Industrial Credit and Investment Corporation of India [ICICI] and


6.     Introduce better regulations for capital market transactions while decreasing direct control. Eliminate tax preference for UTI and allow private sector mutual funds.


The recommendations for priority sector lending recategorisation, interest and reform of financial institutions can proceed immediately, independent of budget deficit reductions.


In the medium term

1.     Eliminate priority sector lending target.


2.     Introduce floating interest based on a market-determined prime rate.


3.     Further recapitalise commercial banks after internal restructuring and reorganization to the Bank of International Settlement [BIS] standards, perhaps through private sector participation and


4.     Allow private participation in the Industrial Development Bank of India [IDBI] and the Industrial Finance Corporation of India [IFCI] and also allow further private sector ownership of ICICI to reinforce autonomy and facilitate business innovation.


In the long term


1.       Allow completely market determined interest rates and 


2.       Privatise commercial banks, development banks and money capital markets.


The happenings in the banking Industry over the past decade will amply evidence that the above prescriptions by the World Bank are faithfully implemented by the Governments in power in India since 1990’s as under:


ü The capital of the banks to be increased by private participation

ü New prudential norms like CAR ratio

ü Privatization of Banks

ü Higher level of computerization

ü Reduction in priority sector lending to 10%

ü Cut in subsidy for social lending

ü Liberalization of interest in advances

ü Interest rates to be determined by market

ü Curbing of trade union rights

ü Reduction in staff strength by 20%

ü Ban on recruitment and outsourcing job, contractualisation of labour 

ü Reduce staff. Stop further recruitments in award staff cadre.

ü Stop the channel of even compassionate appointment towards this reduction

ü Reduce immediately the share capital of the government in public sector banks from 51% to 33% and then to 26%. Increase Private shareholding to 67%.

ü Incorporate Public sector banks under the Company’s Act and delink from bank nationalization act.

ü Introduce voting rights as per company’s act.

ü Ensure market driven consolidation of banking system and reduce number of public sector banks to 4 or maximum after such mergers.

ü Bring necessary legislative amendments to the statues to facilitate and enable such mergers.

ü Ensure that RBI’s shareholding in SBI is not transferred to the Government.

ü Give up majority ownership of public sector Banks both in nationalized banks as well as for State Bank of India.

ü Encourage more private banks.

ü Encourage Bank mergers under the guise of consolidation , setting up of holding companies 

ü Give more stakes to Industrial houses in the existing banks and/or allow them to promote new banks




ü Convert Non-banking Finance Companies (NFBC’s) to banks.

ü Permit foreign Banks /foreign investment to enhance their presence in Indian banking System.

ü Increase the ceilings on FII through investment in debt funds to $1.75 billion.

ü Stop concessional loans to priority sector.

ü Permit the Banks to trade in commodities and derivatives (a form of speculative investments which give huge profits).

ü Dilute, dismantle all regulatory measures such as priority lending, as well as restrictions on banking activities in India.

ü Allow Banks greater scope to fund trading in share markets

ü Scrap the tax on long- term capital in share trading altogether

ü Reduce tax on short- term capital gains to 10%. (This is a stunning tax give –away. Wages above Rs. One lakh are taxed at the rate of 20 and 30%, but speculative income is taxed at a much lower rate!)

ü Create universal Banks that are in the nature of Bank supermarkets, offering the customer a range of products like debt products, investment services, debt and commodity markets and insurance of different kinds.

ü Overhaul thoroughly Priority lending and investments policy of nationalized banks and make them lucrative profit-making machines, ripe for foreign take-over.

ü Direct Closure of bank branches in the name of Competitiveness, Consolidation or Corporatisation or efficiency and profits disregarding the waste of social assets already created.

ü Systematically and periodically write off NPA in nationalized banks. With the grounds already laid for the maximization of profits then allow speedy take-over of Indian Banks by the foreign TNCs.

ü Amendments to rules to freely transfer the employees

ü Easier rules to dismiss employees

ü Deunionisation and union free environment,


NOTE: Once the nationalized banks are handed over to the private sector, credit flows to the rural sector and agriculture shall be steadily choked. Similarly, small, mini and cottage industries, self-employed persons, like vendors, cobbles, rickshaw-pullers shall be thrown out of the credit delivery system.


The recent bank failures in South-East Asia, including Japan, could hardly affect India or its banking system. The reasons for this contrasting situation are not difficult to understand. While India had a strong public sector banking system, more or less well regulated, these Asian Tigers were having private banks, with hardly any regulation and run on the prescriptions of World Bank and IMF. While many banks closed down, currencies collapsed, thousands lost their jobs, economy got the rudest shock, resulting, ultimately, in political instability. Taking advantage of this chaos and anarchy, foreign capital took over many banks and the financial system.  Bank privatisation is hence against people’s interest.



Industrial sluggish growth: Re visit banking reforms


One of the reasons for the sluggish industrial growth in India is doing away with specialized development banking institutions during the period of economic reform.  Is this regard we compare the Indian and Brazil model which were similar for development finance institution (DFC’s). We shall explain this comparing the models in vogue at Brazil an India.  Two developing countries that relied heavily on development banks in their post-War industrialization effort were Brazil and India.


Two developing countries that relied heavily on development banks in their post-War industrialisation effort were Brazil and India. In Brazil the principal development bank is the Brazilian Development Bank (BNDES) established in 1952. Over time the government has used various measures such as special taxes and cesses, levies on insurance and investment companies and direction of pension fund capital to mobilise resources for the industrial financing activities of the BNDES. The size of BNDES support for investment increased significantly, with a transition in 1965 when BNDES support rose from below 3 per cent of capital formation to 6.6 per cent. There was also a shift in the focus of BNDES activities. While initially sectors like transport and power overwhelmingly dominated its lending, subsequently there was considerable diversification in support, to sectors such as nonferrous metals, chemicals, petrochemicals, paper, machinery, and other industries. Further, while in its early years BNDES investments were focused on the public sector, there was a significant shift in favour of the private sector in later years. In the period 1952-66, 80-90% of financing was directed to the public sector. That figure fell to 44 per cent during 1967-71, and then to between 20 and 30 percent.


India adopted a more elaborate structure. Apart from setting up an Industrial Finance Department (IFD) in 1957 within the Reserve Bank of India (RBI) and administering a credit guarantee scheme for small-scale industries from July 1960, a series of industrial credit institutions were promoted, which in fact had begun earlier with the setting up of the Industrial Finance Corporation (IFC) in July 1948 for rendering term-financing for traditional industries. In addition, State Financial Corporations (SFCs) were created under an Act that came into effect from August 1952 to encourage state-level medium-size industries with industrial credit. In January 1955, the Industrial Credit and Investment Corporation of India (ICICI), the first development finance institution in the private sector, came to be established, with encouragement and support of the World Bank in the form of a long-term foreign exchange loan and backed by a similar loan from the government of India financed out of PL 480 counterpart funds. In June 1958, the Refinance Corporation for Industry was set up. The next major step in institution building was the setting up of the Industrial Development Bank of India (IDBI) as an apex term-lending institution, which commenced operations in 1964.


The importance of these institutions is clear from the fact that their investments (disbursals) in Net Fixed Capital Formation in India rose from less than 10 per cent before the 1970s to around 35 per cent in 1988-89. Over 70 per cent of sanctions went to the private sector, and took the form of loans as well of underwriting and direct subscription of shares and debentures.

The similarities between Brazil and India with respect to development banking are clear. However, a real difference between the two emerged occurred in the period since the early 1990s when the government in these two countries opted for internal and external economic liberalisation. In Brazil, reform notwithstanding, the BNDES has grown in strength. Its assets totalled Reals 277.3 billion or close to $120 billion at the end of 2008. This has served Brazil well. The bank's role increased significantly, when private activity slackened in the aftermath of the financial crisis. This countercyclical role helped Brazil face the crisis much better than many other developing countries.


According to reports, the BNDES has stepped in to keep business credit going, when private sector loans dried up in 2008. It lent a record 168.4 billion Reals ($100.8 billion) in 2010, which was 23 percent higher than the previous record in 2009. As a result, the country's credit to gross domestic product ratio continued to grow after the onset of the financial crisis.

On the other hand, liberalisation has damaged the structure of development banking in India. On March 30 2002, the Industrial Credit and Investment Corporation of India (ICICI) was, through a reverse merger, integrated with ICICI Bank. That was the beginning of a process that lead to the demise of development finance in the country. The reverse merger was the result of a decision (announced on October 25, 2001) by ICICI to transform itself into a universal bank that would engage itself not only in traditional banking but investment banking and other financial activities.


After that reverse merger was put through, similar moves were undertaken to transform the other two principal development finance institutions in the country, the Industrial Finance Corporation of India (IFCI), established in 1948, and the Industrial Development Bank of India (IDBI), created in 1964. In early February 2004, the government decided to merge the IFCI with a big public sector bank, like the Punjab National Bank. Following that decision, the IFCI board approved the proposal, rendering itself defunct.

Finally, IDBI was merged with IDBI bank, which had earlier been set up as a subsidiary. With this creation of a universal bank as a new entity, that has multiple interests and a strong emphasis on commercial profits, it is unclear how the development banking commitment can be met. These decisions are bound to aggravate the shortage of long term capital for the manufacturing sector, especially for medium sized units seeking to grow.

These two experiences point to the two very different directions that development banking has taken. Some countries like India are doing away with specialized development banking institutions on the grounds that equity and bond markets would do the job. This is bound to lead to a shortfall in finance for long-term investments, especially for medium and small enterprises. Fortunately, there are some others such as Brazil that have thus far not opted for this trajectory.


This makes evidently clear that the polices pursed under the guise of banking reforms have failed in our country an in the process of rectifying the same after self introspection, government is myopically aping  still the policies of the west landing the economy and baking in greater trouble, like  a drunken person navigating Pot hole  getting trapped on a  huge pit .  Government should be ready at all times to stand up for the truth, because truth is in the interests of the people; Government must be ready at all times to correct their mistakes, because mistakes are against the interests of the people.  The adage “Wise men profit more from fools than fools from wise men; for the wise men shun the mistakes of fools, but fools do not imitate the successes of the wise” is equally applicable to many of the ill-advised banking reforms policies pursued by the Government.




“Nationalization of private losses and privatization of their profits”


Routine assessments of financial stability extol the robustness of India’s banks and their ability to bear stress. But this is largely because large, questionable loans to private investors in capital-intensive sectors have been restructured to keep them 


Ever since liberalisation opened up and deregulated the markets and institutions that constitute India’s financial system, the positive effect that has had on India’s banks has been a periodic refrain. Two sets of indicators are used to support that argument. The first is the sharp fall in the share of non-performing loans to total, with the ratio of gross non-performing assets (NPA’s) to gross advance falling from close to 16 per cent in the mid-1990s to as low as 2.5 per cent a decade later, where it has remained since. As a ratio of total assets too those NPA’s have fallen from 7 per cent to less than 1.5 per cent The second set of indicators point to the successful adoption by India of Basel norms in both their first and second versions, with the capital to risk-weighted assets ratio being well above 12 per cent in the case of almost all scheduled commercial banks. With the major banks stripped of their NPA’s and extremely well capitalised, India’s banking system seems a model to hold up to the rest of the world. Those who had predicted that liberalisation would increase the fragility of the banking system had been shown to be wrong, it is therefore argued.


This performance was particularly creditable because the system was displaying enhanced robustness in the midst of a sharp increase in credit advanced by the banking sector. Thus the ratio of credit outstanding to GDP, which stood at around 2 per cent just prior to liberalisation and remained around that level till the end of the 1990s, rose sharply in a period of rapid growth to reach 5.2 per cent in 2007-08 and 5.6 per cent in 2011-12


Away From Production:

There was, of course, some cause for concern as a result of a couple of post-liberalisation developments to which even the central bank as the principal regulator had on occasion drawn attention. Significant among these was a shift in lending by the banking system away from the productive sectors to the retail sector, with personal loans accounting for a rising share of the total.

Between the end of the 1990s (March 1998) and March 2011, the share of industry in total advances (which, as mentioned, was rapidly rising) fell from 49 per cent in 1998 to 38 per cent in 2004 and remained around that level till 2011. On the other hand, the share of personal loans rose from 10.5 per cent in March 1998 to 20.3 per cent, though it stood at a lower 16.4 per cent in 2011, as a part of the slowdown that had begun to affect the economy. Much of the retail lending was to the housing sector, with automobile and education loans being quite significant too.

As in the case of the sub-prime market elsewhere in the world, this expansion of retail lending had brought into the universe of borrowers a set of households that did not have secure employment, could not offer much collateral and often had borrowed more than they should. This could, when economic circumstances change, lead to default rates that would be difficult to provide for and cover and pointed to an increase in potential fragility. It was such expansion in retail lending that prompted former central banker S.S. Tarapore to call for caution with regard to India’s own version of the sub-prime problem.

Government pressure

It is now becoming clear that such signs of potential fragility have been accompanied by another form of increased fragility resulting from changed lending behaviour and liberalised regulatory practices. The source of this fragility was the Union Government’s decision to use the banking system as an instrument to further an aspect of its larger liberalisation agenda: the entry of the private sector into core infrastructural areas involving lumpy capital intensive investments in power, telecommunications, roads and ports, and sectors such as civil aviation.

Under normal circumstances, banks are not expected to lend much to these areas as it involves a significant maturity and liquidity mismatch: banks draw depositors from savers in small volumes with the implicit promise of low income and capital risk, and high liquidity. Infrastructural investments require large volumes of credit and do involve significant income and capital risk, besides substantial liquidity risk. So what is required for supporting infrastructural investment are increased equity flows from corporate or high net-worth investors and the expansion of sources of long-term credit such as a bond market.

Neither of these, especially the latter, occurred in adequate measure. Rather, the development financial institutions with special access to lower-cost financial resources, which were created as providers of long-term finance, had been shut down as part of liberalisation. Hence, besides recourse to external commercial borrowing, many infrastructural projects had to turn to the banking system. As is to be expected, private banks have been unwilling to commit much to this risky business. So, it is the public banking system (besides a couple of private banks) that has moved into this area, possibly under Government pressure.



The figures are dramatic. The share of infrastructural lending in the total advances of scheduled commercial banks to the industrial sector rose sharply, from less than 2 per cent at the end of March 1998 to 16.4 per cent at the end of March 2004, and as much as 31.5 per cent at the end of March 2012


That is, while the share (though not volume) of lending to industry in the total advances of the banking system has fallen, the importance of lending to infrastructure within industry has increased hugely. Four sectors have been the most important here: power, roads and ports, and telecommunications, and more recently a residual ‘other’ category, reflecting in all probability the lending to civil aviation.


Unfortunately, as the exposure of the banks to these sectors has increased, the folly of “dragging” the private sector into infrastructure with concessions and cheap credit is becoming clear. The shake-out has begun in civil aviation with possibly only one airline able to show profit after many years of liberalisation.


Of the ones that were surviving until recently, the worst case is Kingfisher Airlines, which added to the effects of an erroneous policy through its own follies: bad strategy, bad acquisitions, profligacy and obvious mismanagement.


The result is that the banks that lent to Kingfisher have found themselves in a mess. If they withdraw, they invite default of the large volume of debt they have already provided. So they restructure debt, offer better terms, extend repayment periods, and provide more credit to keep the unit afloat. But they are doing so with the knowledge that unless the Government uses taxpayers’ money in some form to bail out the unit, this is merely sending good money after bad.


Thus, in 2010, the banks had got together and under the corporate debt restructuring scheme of the Reserve Bank of India restructured debt to the tune of Rs 7,720 crores owed by Kingfisher. Now, with the debt of the airline having increased by another Rs. 1,000 crores or so, the airline has been forced to suspend operations with no hope of repaying the banks unless the impossible happens.


At the banks’ expense


Such restructuring of debt as is being implemented in India’s infrastructural sector clearly favours the debtor at the expense of the creditor. The RBI’s prudential guidelines define a restructured account as one where the bank, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower concessions that the bank would not otherwise consider.


Restructuring can involve some combination of changes in the terms of advances, such as alteration of the repayment period, reduction of the repayable amount, reduction in the rate of interest and conversion of debt to equity. It can also be accompanied by the provision of additional credit, despite the shortfall in meeting past commitments. The intent is to help the company recover. But often that intent is not realised. The only benefit is that in return for the losses the creditor institution suffers, it is in a position to treat the asset (after providing for any write-down) as a standard asset subject to conditions. But this may, in fact, provide the cover to abuse the restructuring route to bail out private investors at the expense of the banks.


As the table shows, the net result of this strategy has been that the troubled assets restructured by India’s banks had by March 2011 exceeded the identified NPA’s of the banking system.


The reason is that Kingfisher is no exception — it is the tip of a debt-default iceberg that has been hidden by restructuring. The largest chunk of bank debt to infrastructure (estimated at Rs 2,69,196 crores as of March 2011) was in the power sector.


The problem in the power sector is that large capital investments, wrong technology choices, poor management, high power costs that the State distribution agencies are not able to bear given the tariffs they charge, and difficult and costly fuel supplies have all ensured that most of the high-profile private power projects are not viable.


The Government has sought to prop them up with concessions such as coal allocations without success. If this leads to failure, the bankruptcy of the private sector power companies can spill over onto the banks carrying their loans, much of which has already been restructured. According to an estimate by Credit Suisse reported in the media, 36 private thermal power projects carrying a debt of Rs 2,09,000 crores are now facing potential stress.


A chunk of bank exposure to power consists of credit to finance the losses incurred by the power distribution companies, most of which are State-owned, though privatisation has brought in non-State players. That exposure is estimated at Rs 1,50,000-1,70,000 crores as on March 2012, which is around half of total power credit.


In theory, the State-inspired restructuring has conditions attached to it that are expected to ensure that the units involved would turn around and become commercially viable. But the feasibility and viability of these liberalisation-inspired schemes are in serious doubt.


As noted earlier, the burden of financing the losses has fallen disproportionately on the public sector banks, which have seen the volume of restructured assets grow at a compounded rate of 47.9 per cent during 2009-12, when credit grew at 19.6 per cent. The comparable figures for private banks were 8.1 per cent and 19.9 per cent and for foreign banks -25.5 per cent and 11 per cent respectively. Clearly, liberalisation has not reduced but rather increased the misuse by the State of the public banking system to shore up private capital.


The Great Indian Bank Robbery

About 8 years ago, Indian Express ran a series of articles on the systematic loot of the banking system with possible connivance of Bank Officials estimated at Rs.1.1 lakh crores. Today the media is going crazy over NPA‘s of Kingfisher And Deccan Chronicle. These things have happened in the past also and conveniently forgotten. This happens as either people loose interest or get appropriated into the system by the very people who are targeted by such reports. Whatever it may be, the point is kicking up such storms is just a hobby and a way to get into limelight with ulterior motives. Even Indian Express did not follow it up. Now the media is breast beating about black money stashed away in foreign banks. It is only such ill gotten wealth which is carted away. Whatever it may be, the point is kicking up such storms is just a hobby and a way to get into limelight with ulterior motives. In this chapter we are trying to once again rake these issues up with the first article that appeared in December, 2002, January 2003.


When the parliament passed the  a new law to act SARFESI against India Inc’s mountain of unpaid loans the Indian express after thorough investigations ran series of five articles titled  Rs 11,00,00,00,00,000:

The Great Indian Bank Robbery I

The Great Indian Bank Robbery Edition II

How Defaulter No 1 worked overtime to stay at top

How textiles group took its banks to the cleaner

Chor Machaaye Shor


 “This is the money that India Inc owes and won't pay back. Here's what it could pay for: all our defence bills for 2 yrs. Or an expressway in every state. Or A school in every village”


The report said “Forgotten Harshad Mehta? Just as well. The scale of the scandal now threatening India's economy is vastly greater than the 1994 stock market carnage. The numbers may seem unreal, but Rs 110,000 crores is actually a conservative government estimate of the unpaid loans—officially called non-performing assets (NPA’s)—staining the books of India's banks and financial institutions.

For vast swathes of corporate India, it's been an era of financial plunder. Then why Finance Minister Jaswant Singh called  NPA’s ''loot, and not debt .

To a strident demand by the Opposition to table the list of defaulters the government furnished asudner 


Company Total Default (Rs Cr) Mardia Group 1,450 Lloyds Group 1,012 Modern Group 846 Parasrampuria Grp 705 Core Healthcare Grp 751 Mafatlal Group 598 Nova Group 527.5 Patheja Group 547 Usha Ispat 391.7 Indian Charge Chrome Ltd 493.3 Altos India 437 Jk Group 698 Rajinder Group 620 Mesco Group 527.5 Prakash Industries Ltd 360 R S Mardia H S Ranka (Modern) Vinay Rai (Usha) Mukesh Gupta (Lloyds) ...And Other Problem Cases? Essar Group 7,184 Malvika Steel (For 2000-01) 2,095 Jindal Vijaynagar Steel 4,900 Spic Group 3,284 Sanghi Group 1,582 Cesc Ltd 3,300 Ig Petrochemicals Ltd 720 Ispat Industries Ltd 6,369 Ispat Metallics Ltd 1,688


 Sources: Ministry of Finance, Reserve Bank of India, and financial institutions.

 NOTES: 1. The information is valid upto March 31, 2002, unless otherwise indicated. 2. The list is in no particular order. Some figures are estimates. 3. Companies in the first list are declared defaulters with debts converted to non-performing assets (NPA’s) in the records of banks and financial institutions. Those in the second chart have not been declared defaulters—though some debts could harbour NPA’s. 4. A debt is supposed to be classified as an NPA if agreed payments are not made within 180 days. The new law will reduce that to international norms: 90 days.


The article further unraveled, what the Government didn't mention is that it has no reliable, consolidated list. The Finance Ministry's list of defaulters, as of March 31, 2002, is still topped by Harshad Mehta at Rs 812 crores. The RBI does not reveal a defaulter's identity unless a bank files a law suit. So many of the big fish, don't show up on these hot lists. Some escape law suits. Other defaults are deliberately fogged by accounting practices: so defaults hide, for instance, as ''projects under implementation.''
To compile a list, The Sunday Express launched a nationwide investigation that took reporters from corporate offices in Mumbai and New Delhi to factories in Alwar, Rajasthan and Vatva, Gujarat. Given the fog of secrecy and arcane accounting practices that surround defaulters, it involved several background briefings from banks and financial institutions, Government officials and company managements.

Thereafter the Indian express  brought out  series of stories detailing how unchecked borrowing by industrialists ballooned into bad loans, how they continue with their lavish lives as their companies crumble and jobless workers fight for survival.


 The articled underscored the truth  that “The lenders should first target the largest defaulters, who have the ability to pay but have shown no willingness to do so,’’ said then  UTI Chairman M. Damodaran. The Finance Minister has assured Parliament that the new law will be ‘‘enforced without fear or favour.  The message may not have reached some of his colleagues in Parliament.   That’s why Congress spokesman Kapil Sibal, appears for India’s worst officially listed defaulter, Ahmedabad’s Mardia Chemicals, which in five years hasn’t paid a paisa of its debt: Rs 1,404 crore and mounting. Sibal, who says he’s in favour of the new law, is fighting a suit that wants the Act struck down as ‘‘unconstitutional.  That’s why the Shiv Sena’s Balasaheb Vikhe Patil earlier this year asked IDBI and SBI to call meetings in Mumbai to restructure debts of the Lloyds Group. When contacted, Patil said: ‘‘I recommend people for many things, but I always say according to rules and regulations.’’



FM & EX-FMS: ALL AGREED (This is) loot, not debt...


 the provisions of the Act will be enforced without fear or favour. We’ll start with the bigger NPAs, and then move to the others Jaswant Singh, Finance minister If defaults continue, it will be the end of the financial system. Till now, everything was in favour of the borrowers. The lenders were being taken for a ride while the defaulting industrialists flourished Dr Manmohan Singh Former finance minister and RBI Governor This Act gives unreasonable discretion to the banks. What is also important at this stage is not to see who have been sent notices, but who have not been. Questions must be asked why these people have not been sent notices. P. Chidambaram Former finance minister .If enforcement falters and NPA’s continue their rise, it could help send India towards the kind of financial crises that ravaged the tiger economies two years ago. But South Korea, Malaysia and Singapore were better off then than India is today.


The proportion of NPA’s to total bank advances was at that time about 7 per cent in those countries in September 2000. India’s figure, as of 2001 was 11 per cent, though Ministry of Finance (MoF) officials are quick to point out that NPA’s of public sector banks, at least, dropped from 24.7 per cent in 1994 to 11.4 per cent in 2001.


The old laws were woefully inadequate. The government’s other major initiative in recovering NPA’s—setting up Debt Recovery Tribunals (DRTs) in major cities—hasn’t really worked. There are 56,988 cases filed in the DRTs, involving Rs 1,08,665 crores. The amount recovered till March 2002 is a paltry Rs 4,736 crores.


Thereafter ten of the 16 large groups sent notices by the ICICI under the new law are now pleading for negotiated settlements. Some of the obdurate industrialists who scurried in with token payments: the Ispat Group, two companies of the Jindal group, the Lloyds Group, Ganesh Benzoplast and Kesar Enterprises. A senior banerk said “  But one reason why the cheque books are reappearing is because the defaulters hope to reschedule or restructure loans’ After all, the same banks and FIs consistently obliged them with sweetheart deals for years by lowering interest rates, writing off some loans, converting debt to shares at dubiously low levels, or handing out new loans to repay old ones. So the payments started that  coming in were small—as low as Rs 50 lakh in some cases. Still, the chief of one institution sees it thus: ‘‘Many industrialists have forgotten how to take out their cheque books and sign cheques to us: that they are even making a small payment is a beginning.’’



What has changed?


Now once gain after 10 years after publishing of articles by Indian express , the eloquent statements, appellations of the ministers to  hoot out this NPA menace through stringent legislations ,   banking sector has been in news for wrong reasons. “Big borrowers from public sector banks are big loan defaulters”


That public sector banks are saddled with more than Rs 100,000 crores in bad loans, enough money to fund half of India's defence budget this year, is an open secret. What has come as a surprise, though, is the fact that big borrowers-those who owe more than Rs 10 crores but have not paid up on time-make up more than three quarters of the amount in default, data obtained through an RTI application revealed.


The high end loan-owners, most of whom are builders, manufacturers or managing educational or medical institutions, account for 78 per cent of bad banking across the nation, going by statistics provided by 26 nationalised banks to an RTI query by a Thane-based chartered account.


The affluent borrowers which total up to a miniscule 969 accounts, have collectively defaulted on their scheduled loan repayments exceeding Rs 78,000 crores to the lending banks as on December 2011. A vast majority of the defaulters -- 49.23 lakhs as on December 2011-- across the nation were responsible for a gross Non Performing Asset (NPA) of just over Rs 22,000 crores or a mere 22 per cent of the bad debts.


It means that people who borrow less pay more in interests and capital to the banks. But those who borrow more have no liability whatsoever to repay their loans. Any person who defaults on a small or medium loans taken for his house, car or any entrepreneurial venture has to face such humiliation from bank-appointed recovery agents and bank officials that it leaves an imprint on his psyche. However, people who virtually rob banks of crores of rupees go scot free despite all the half-hearted attempts by the banks to recover the amount.


The RTI activist Thane ( a district in Maharahstra ) -based chartered account said that the bank managements have further declared that the NPA declaration by the banks does not mean that the borrowers are intending to cheat but circumstances outside their control have crippled them financially.  Inflation, economic slowdown, increase in interest rates are some of the contributing factors for such a large NPA base. However, the recent switch over by public sector banks to computersied system of identifying NPA from the previous relationship banking has added to the problem. Previously, the bank manager and staff knew the borrower and would consider his request to release some part payment so as to avoid his account to be tagged as NPA. In the present system anyone who defaults on repayment of interest for more than 180 days is blacklisted as NPA.


The Indian government's recent proposal to restructure debt of state-owned power distribution companies will provide them only a temporary reprieve from weakening finances. The proposal is in itself unlikely to adequately speed up the growth in India's power capacity to meet snowballing demand. That's according to a report titled "India's Power-Sector Debt Restructuring Proposal: A Salve, Not A Cure Proposal: A Salve, Not A Cure," that Standard & Poor’s Ratings Services published recently.

 According to the government proposal, a portion of loans to the power distribution companies will be restructured. About half of these loans will be transferred to the respective state governments. This could be through guarantees on bonds that the distribution companies will issue.
The report analyzes the impact of the proposal on distribution companies, the sovereign, and on financial institutions that have lent to power companies. It also examines the effect of the recent power blackout on India’s industries and growth prospects.


The power outage has affected 20 of India's 28 states, but had little impact on industry. One key reason is that several Indian companies have broken away from state-supplied electricity, and now depend on their own captive power plants. Such a practice reduces the competitiveness of Indian businesses and deters investments by overseas companies.
An increase in investments to the sector is possible only with transparent tariff regulations and reliable fuel supply. A reliable fuel supply, in turn, hinges on availability of timely clearances and a transparent framework for producing fuel, and the presence of adequate infrastructure for transporting fuel. Hence the government policies are the root cause of induced NPA’s in this sector.


Rotten Apples

According to an S&P report, about 11 per cent of banks' loans to the sector were restructured by FY12. it is pertinent to mention  here that   Indian banks do not include restructured loans as non-performing loans.
State-owned banks have a larger exposure to power utilities than their private sector counterparts.


According to sources, the finance ministry has asked public sector lenders to form consortiums to restructure the accounts of SEBs. The rationale behind the move is that by carrying out restructuring together, banks could pressure SEBs to agree to their terms and conditions.
However, in practice, the terms put forth by banks turn out to be politically unpalatable as they involve raising tariffs and asking state governments to foot the subsidies provided to consumers.


The Cabinet Committee on Economic Affairs further approved restructuring of Rs 1.9 lakh crores debt of state electricity boards. According to analysts, the move will benefit the lenders and power companies in the long term if discipline is maintained.


As per the scheme, 50 per cent of the short-term outstanding liabilities would be taken over by state governments and balance 50 per cent loans would be restructured by providing moratorium on principle and best possible terms for repayments, an official statement said.


In a major shift from its earlier stand, the consortium of 13 banks that has a Rs. 7,700-crore exposure to the bleeding Kingfisher Airlines has indicated that it could agree to provide about Rs. 600 crores of additional working capital required by the carrier to tide over its financial crisis.  The government is expected to move fast on allowing foreign direct investment into the cash- starved aviation sector, a move that would ease the pressure off Indian carriers. Once the FDI proposal is cleared, the situation of the country’s airline majors would be healthier” a government official told Hindustan Times on the condition of anonymity. “Banks are therefore not averse to providing the additional capital sought by Kingfisher.”


A chairman of a public sector bank, which has a significant exposure to Kingfisher stated in a paper report that an amount of over Rs. 7000 crores cannot be allowed to turn non-performing. Besides, banks would be required to provide the additional capital as part of the airline’s debt restructuring exercise carried out last fiscal.


Banks' exposure to the aviation sector is unsafe, as the companies in the sector are highly leveraged, face a high interest burden and also the potential rise in fuel costs, which eats up these firms' profitability. A total of approximately 63500 cr of debt is seen in the airline companies like Kingfisher, Air India, Spice and Jet Airways. Kingfisher Airlines has a huge debt of Rs 7000 cr, of which approximately Rs 6200 cr has been issued by the Indian banks.


For the last 7 years, Kingfisher Airlines has been reporting losses continuously. For FY11, it reported a loss of Rs 1027 cr on the back of huge interest expenses, which stood at Rs 2340 cr. Banks are worried as their exposure to the company will result in the restructuring of debt and additional provisioning, which will affect the banks' profitability. SBI has the highest exposure of Rs 1410 cr in Kingfisher Airlines.


The following table shows the exposure various banks have to Kingfisher Airlines:


Rs (Cr)

State Bank of India




Punjab National Bank


Bank of India


Bank of Baroda




United Bank


Central Bank


Corporation Bank


UCO Bank


State Bank of Mysore


Indian Overseas Bank


Federal Bank


Oriental Bank of Commerce


Punjab and Sind Bank


Axis Bank


IndusInd Bank




Kingfisher Airlines had asked for government help to meet the financial challenges resulting from rising cost of ATF and the debt burden. It has also proposed that the government should allow FDI investment in the aviation sector.

Earlier, the banks had restructured some of the loans into Compulsorily Convertible Preference Shares (which were further converted to equity at Rs 64) and Cumulative Redeemable Preference Shares. Banks now own 23.39% of the shares, and are affected by Mark-to-Market loss.


Commenting on this bail out package to King Fisher and Deccan Chronicle willful defaulter the social networking site, popular site of bank employees (working & retired )  succinctly exposed it as titanic default.  In a hard hitting article against these willful defaulters the All Banking Solution site  stated    Two major account (total exposure of banks is above Rs 12,000 crores) which have repeatedly hit the headlines and are now under media scanner are Kingfisher Airlines and Deccan Chronicles Holding Ltd. Each one of us have certainly heard about 'Titanic' - thanks to the wonderful movie by the same name - which was seen by almost all  of us with awe inspite of this being a tragedy.    It is a human nature that people enjoy larger than life size events, even if they are terrible  tragedies, provided they or none of their near ones suffered in that tragedy.   Whether it was Titanic or Hindonsburg or 9/11 Twin Tower Crash - each one is seen with awe by general public and they are ready to see the same again and again on their big screen or TV sets. The people behind and the concept supported by the management of above two accounts were projected as Large than Life and as Dream Projects for Indians. Vijay Mallya was always shown as busy with glitz, glam, bikini clad models, booze, and F1.   Similarly, DCHL got its boost after entering into cricket arena under the brand of "Deccan Chargers".   Huge stadiums, flood lights, Cheer-Girls shown through hitherto unknown camera angles were part of the Brand called Deccan Chargers of IPL fame.    Both the above referred companies are now on the verge of collapse and this will result in TITANIC DEFAULT for bankers.  These two companies together have exposure of over Rs 12,000,00,00,000 (Rs12,000  crores.).  A decade ago this figure must have sent chill in the spine of any top banker.


   However, now it is being taken as a matter of routine and no one seems to be worried except fools like me.   The reason are obvious.  After charges of corruption running in lakhs of crores, people are becoming immune and slowly giving up some resistant they early at least thought of. All bankers are well aware of the alarming situation on NPA front, but top management has been trying hard to bury the same under sand and put up a brave face that 'all is well".    The syndrome of 'all is well' is repeatedly shown by our politicians and others who are in power.  

KF and Deccan are only the starting points for mega defaults.   I call them TITANIC DEFAULT as the losses on slippage of these accounts will be huge and large scale infirmities will be exposed.   BUT certainly NO HEADS WILL ROLL,  unlike in small loans of few thousands where BM is invariably charge sheeted for not preparing the CR of a farmer or Housing Loanee or failing to assess properly the market value of a collateral of one or two lakh rupees.


Bankers have read the news about the above defaults, but must have found it difficult to assimilate the facts - due to paucity of data and time.  -social networking site which champions the common bank employees causes summarized some of the facts, bail out packages to these willful defaulters  which it gathered from various news,  but are glaring and every  banker  must  know  these facts in its informative

thought provoking article.


 Any banker who has fair knowledge of credit will be shocked to read the above.   Frankly speaking it is rightly said that we are treading across 'unchartered territory' with 'unprecedented spike' in restructured loans, which all started in big way in 2008.   Corporate knew it well that in the name of growth story of India, they can loot the resources of the country.   They knew it very well that they can take a risk and create wealth for themselves but would not have to bear the costs of those risks.   If they failed or were able to show that they have failed, everything will be free.    Today, nobody knows how much of this will go bad as the banks were very lenient and in order to cover up their past misdeeds are trying to find out new ways to put these under carpet.


The signals for this mess have already been noticed by number of analysts, credit rating agencies and some freelance authors From time to time they have tried to highlight these but nobody listens and they are dubbed as anti-national and creators of pessimism.  Bankers will remember that when rating agencies downgraded India and some banks, our former FM, now President jumped into fray and wanted to expel some of such agencies.  Now the water in the swimming pool has reached the level of lips and can cover nose any time.  What bankers are trying is to reduce the level by throwing some water out of the pool by the actions of their hands and arms.


 Across the world, now Indian are competing with the best brains.  The above loans were consortium or multi-banking loans and almost every major bank has some share of exposure in these two accounts.  What is glaring is that top bankers, across public and private sectors, did not find any issues in financing such huge amounts based on collaterals which were physically non existent.  This is an example of herd mentality whereby small bankers merely follow the bigger banks on the plea that due diligence must have been done by banks which have entered the fray at initial stage.   This is nothing but herd mentality.  It is pertinent to note here that inspite of huge losses, no big heads have rolled.

Merry go round goes on …

So the merry round of  herd mentality sanction without objective  assessment , one time settlements, waivers, write-offs, of  government –politicians – borrowers –bankers nexus goes unabated even in era of deregulated  banking widely talked about by the proponents of privatization.  The net result is  that Amount to rescue for PSU banks on account of NPA’s pegged at $1.7 billion (Press Trust of India: December 25, 2012)


“Gross non-performing assets (NPA’s) of public sector banks have increased from 2.28 per cent in March 2010 to 4.01 per cent in September 2012,


For SBI Group, the gross NPA (as a percentage of gross advances) has jumped from 2.82 per cent in March 2010 to 5.16 per cent in September 2012, Namo Narain Meena, Minister of State for Finance, said in a written reply.


In the case of nationalised banks, gross NPA’s have increased from 2.04 per cent in March 2010 to 3.50 per cent in September 2012. The Government has advised public sector banks to take a number of new initiatives to increase the pace of recovery and manage NPA’s, the Minister For state for Finance  said.


The total bailout amount required to rescue public sector banks in case of maximum stress caused due to non-performing assets will be around $1.7 billion, a top company official of India Ratings and Research said.

According to Director (Financial Institutions) of India Ratings, at a maximum stress level of NPA, which is considered to be around 13-14 per cent of total assets, government requires $1.7 billion to bail out the public sector banks.


In a published report, the RBI attributes the rise in the NPA’s of both Public and Private Sector Banks to diversion of funds away from the original purpose for which they were granted, as well as willful default (or misappropriation of funds) by borrowers. That apart, adverse economic and market factors, ranging from recessionary conditions, regulatory changes and resource shortages have impacted the health of businesses, and driven them to default on their loan repayments. Sometimes the banks themselves are to blame – delay in loan disbursement can throw a project and have a cascading capacity to repay. Banks have also been known to take comfort in collateral, and hence not follow up diligently enough on loan dues. Were the market value of the collateral to drop, there is an immediate impact on the quality of the related loan asset. There are also other, less transparent reasons why NPA’s are on rise.  For one, the process of (non performing) asset disposal is riddled with legal impediments and delay. Secondly, highly connected corporate debtors have been known to use political pressure to get banks to waive their dues or restructure terms in their favor.  Come election time, political parties make populist promises – such as the credit to the Small Scale and Rural Sectors which may not yield the expected results – which commercial banks are forced to honor.


CDR: Cruel Denial of Recoveries and/ Consensus delay for recoveries?


It is now when entire exercise of recognition of assets is being done by online CBS technology, bankers are constrained to declare their decade old bad accounts as Non Performing Assets. However clever bankers continue to resort to unofficial restructure of loan to conceal bad accounts in various branches .There are many branches where more than 25% of their total loans are truly NPA and at many branches even more than 50% to 75% of their total loan portfolio is bad. Even RBI officials do not want to read the truth and they become satisfied only getting a certificate of health from corrupt bankers.


This is the reason that slowly and year after year , quarter after quarter volume of NPA in public sector banks  and that of restructured loan accounts in these banks have been increasing despite tall claim made by Government of India that banks in India are safe. Banks are eager to restructure because otherwise they have to take a hit on profits or provide more capital


Total loans restructured by Indian banks under the so-called corporate debt restructuring (CDR) route crossed Rs.2 trillion (2,00,000 crores), in December2012. In the past quarter alone, banks restructured Rs.24,584 crores of loans, up from the Rs.19,544 crores they recast in the previous quarter, to reach Rs.2.12 trillion of restructured loans. The actual figure for restructured loans may be around Rs.4 trillion as this estimate does not include bilateral restructuring cases that banks undertake individually with firms.

Note :1  Trillion = 1,00,000 Crore


In an interview with Economic Times on the eve of his retirement on 31-01-2013 Mr., DK Mittal, Former Banking, sharing his views on the mounting NPA’s in public sector banks said:


“We as a majority stakeholder in the public sector banks are concerned about the rising NPA’s and we have been informally discussing with the banks and formally discussing with the banks in the boards what strategy need to be adopted.

The rising 
CDR cases which are coming, many of them are genuine, but many of them as we believe are not so genuine”. To a specific question “What is your take on the Finance Ministry's differences with the RBI on the interest rate trajectory?


Mr. Mittal repleid “A difference in opinion does not mean a confrontation all the time. The government and the RBI could have different perspective. The focus of the two could be quite different.

The government would be looking at larger perspective from the development side and the regulator's side, but the regulator primary tends to look at the regulatory side which is very correct. Now these two different opinions are synergised when we sit together. As Governor Reddy has said that if the RBI and the government are working together, then the RBI is superfluous and if RBI is always having confrontation with the government, that is obnoxious. It is appropriately said”


He was obviously referring to the excerpt of the recent interview of Mr.  Reddy mentioned below.


 Speaking to the new reporters of Hindustan times on   commemorating release of his new book Economic Policies and India’s Reform Agenda: NEW THINKING’ on January 29, 2013, former RBI governor Y V Reddy, the chairman of the 14th Finance Commission, questioning the orthodox economic thinking of the government that developing countries do benefit by attracting foreign savings to supplement domestic savings he said “It’s not Govt. vs. RBI, but a difference of opinion”. Hinting at the repeated interference of the government on the autonomy of RBI “As a general debate there is no point in the central bank always agreeing with government. If it agrees with the government on everything, then it is superfluous. If it consistently disagrees, it is obnoxious. It is not a sub-ordinate office. But there should be creative discussion,” he said. Mr. Y V Reddy cited the case of the UK, where financial sector regulation has been handed over to the Bank of England. “In England, there was a separate regulator for banks. Now, they all (financial sector regulators) were brought under Bank of England by law.” In fact, a single financial sector regulator was contemplated by the Indian government some time ago, he said.


Gross non-performing assets (NPA’s) of 40 listed Indian banks rose to Rs.1.66 trillion in September, up 46.8% from a year-ago period.


In the December quarter, gross NPA’s of 28 listed banks, which have so far reported results, have together accounted forRs.93,748.07 crores. Among the large banks that have the maximum amount of NPA’s are the nation’s largest lender SBI (5.15%) and Central Bank of India (5.64%).


The central bank has sought comments on the suggestions by 28 February 2013. The guidelines, if accepted, could make it more difficult for indebted companies trying to persuade banks to restructure loans. The actual figure for restructured loans may be around Rs.4 trillion as this estimate does not include bilateral restructuring cases that banks undertake individually with firms.


This increased provision will effectively put restructured loans almost on par with bad loans, according to an analyst. About 5.9% of the loan book in the banking system has been restructured as of September 2012, which is about Rs.3 trillion. Right now, at 2.75% provision, banks have to set aside just below Rs.9,000 crores; but if these norms kick in from the next fiscal, they will have to set aside another Rs.3,000 crores, going up to Rs.6,750 crores in two years.


Bankers have already protested against some of the recommendations of the RBI panel earlier. “The recommendations of the committee are not easy to implement. Banks have already spoken against this committee’s recommendations with the regulator,” said a banker who requested anonymity. “Profitability will be hampered and it will not allow us to restructure loans of firms that are genuinely in need.”


“These new guidelines, if applied, will disincentivize banks from inordinate restructuring because they will have to pay a higher cost on restructured loans,” another banker said. “Increasing the provision to 5% will bring the cost of restructuring almost on par with bad loans because when a loan goes into CDR, banks typically take a loan-to-value hit of 10% to 15%. A 5% provision on these loans will mean the cost will be almost equal to a bad loan.”


It is to be understood that if new guidelines of provisioning is implemented in true spirit, banks will be required to make addition provision amounting to Rs.15000 crores as per rough estimate of CRISIL. It means there are at least Rs.300000 crores ( 5% provision is needed on restructured loans as per RBI guidelines ) valued bad loan account hidden in the system using restructuring or are on the verge of restructure of loan or likely to slip into NPA category


That is the reason we euphemistically define the acronym CDR as Cruel Denial of Recoveries and/ Consensus delay for recoveries?


If the suggestions are accepted by RBI, India’s highly leveraged realty sector is likely to be the worst affected. Already, RBI has denied banks permission to restructure loans of companies belonging to the segment. However, they can still restructure the loans of real estate companies as with any other account, on a case-by-case basis.


Any increase in provisioning will have a significant effect, especially since banks will have recast more loans in the approaching months given the slow pace of recovery in India’s economic growth, analysts said.


Under CDR, commercial banks typically stretch the repayment period to stressed companies, offer a moratorium and reduce lending rates, among other measures. Under current norms, banks are required to make 2.75% provisioning on standard restructured loans as against 0.4% for loans that are standard.


In the event of a restructured loan turning bad, the provisioning liability shoots up to 15%. The current situation could turn worse as most analysts suspect that 25-30% of the restructured loans may turn bad, unless there is a significant revival in the economy.


So the finance minister is not going to get his free lunch from Duvvuri Subbaro, RBI Governor, despite the fact that the latter cut both repo and cash reserve ratio on 29 January to please him. The obverse side of easier money and credit is always a higher complement of bad loans. And more bad loans means more capital. What P Chidambaram, FM gained by way of cheaper loans will have to be repaid to banks as higher capital infusion from the government.


In a tail-sting to the monetary policy, the Reserve Bank of India recently announced the above discussed stringent prudential measure for banks that are restructuring bad loans with gay abandon in order to make their balance-sheets look prettier. Restructured loans are essentially loans on which the borrower has defaulted and sought the bank’s acquiescence in either stretching the repayment period or reducing the loan rate, or both.


The Reserve Bank of India’s (RBI) draft guidelines on corporate loan restructuring, if implemented in the current form, would increase banks’ provisioning requirement by Rs 15,000 crores in the next two years and lower their profit around 7 percent.


According to the draft proposals from the RBI, banks’ provisioning on loan restructuring has to at 5 percent, a sharp increase from the present requirement of 2.75 percent. The deadline for the implementation is April 1, 2013. Banks are eager to restructure because otherwise they have to take a hit on profits or provide more capital. Rating agency ICRA says banks bad loans are set to cross Rs 2,00,000 crores.



The RBI’s new prudential guidelines on provisioning for restructured loans says that banks have to write off 5 percent of the value of restructured assets instead of the current 2.75 percent. The rate was revised to 2.75 percent only last November, and the further hike to 5 percent means that banks have to provide more capital in the balance-sheet and more provisions in their P&L account.


For all new restructured loans, the provisioning norm will be 5 percent from 1 April 2013. For the existing stock of restructured assets, the RBI has suggested a phased coverage. Provisioning in 2013-14 will rise from 2.75 percent to 3.75 percent, and in the year after from 3.75 percent to 5 percent. The crunch will thus come in 2014-15.


Not surprisingly, bank shares were swooning all over, with the BSE Bankex and NSE Bank Nifty dropping by 0.7 percent on Friday. . A Bank of America Merrill Lynch report on the new RBI prudential norms said the biggest impact may hit earnings by 3-8 percent for some public sector banks through 2014-15, while the impact on private banks will be negligible.


The real message of the RBI’s prudential changes is simple: banks cannot merrily keep restructuring loans as though everything is fine. They have to provide more capital.


Since the government is the largest owner of banks in India, the finance ministry will surely get a big bill for bank recapitalisation shortly, and especially in 2013-14 and 2014-15. In 2012-13, the centre provided around Rs 15,000 crores for recapitalising public sector banks, but Subbarao’s new prudential guidelines for restructured loans will make the bill bigger next year and the year after that.


Between prudential norms and Basel III – another international capital adequacy norm that is kicking in shortly – banks may have to provide over Rs 5 lakh crores of additional capital in the coming years.


In its annual report for 2012, the RBI said that public sector banks would require Rs 4.5 lakh crores of equity and long-term loans to meet Basel III requirements. For private sector banks, the figures were around Rs 75,000-80,000 crores, including both equity and loans.


The prudential norms on restructured assets will make public sector banks’ capital requirements larger than ever. Public sector banks account for nearly 70 percent of the banking sector.


Perhaps aware of the likely demands for funding, the UPA government has decided that proceeds in 2013-14 can also be used for bank and insurance companies’ recapitalisation. The money may also be used to recapitalise other public sector companies outside the banking sector.


This will lead us to an incongruous situation where more public sector shares will be sold in the coming years to finance reinvestment in banks and other public sector companies.


Disinvestment money will go towards investment in the public sector. Money will go from one pocket to another for no reason other than budgetary convenience.


One wonders whether it would not have been simpler to ask banks and public sector companies to fend for themselves by tapping the market and reducing the government’s stake. Isn’t the time ripe for the government to start letting go of at least the smaller public sector banks?


The Finance Minister should thank Governor  of RBI   for bringing that day nearer by forcing him to rethink the Government to take up part of the disinvestment offer, and then using the same proceeds to recapitalise the insurance and banking sector. If it was anybody else but the government, it would be called a Ponzi scheme. Wonder who is fooled.

Isn’t it time to abandon the charade?


Whey we should oppose:

These gargantuan NPA’s will be seen by general public with awe and there is not likely to be any backlash against these companies.   A man on the street will merely talk as to how foolish were bankers  but will not demand any action against the owners as they had larger than life image and  are viewed with awe.


 And           these willful defaulters     are getting ready to mine the new loopholes of the new law: no clear definition of who’s a willful defaulter; no prison sentences; nothing to stop a defaulter from taking over a privatised bank (especially after the amendments to banking bill “banks borrowers can become banks directors”)   and paying off debts; and nothing to stop their private life of luxury”.


If the spirit behind the new law doesn’t match the letter, if this mother of all bad loans continues to grow, it will squeeze the financial system. In time, it could mean paying more for your home or car loan, and getting less interest for your savings.


 If you are just an ordinary tax-payer, the quintessential man on the street, why should you be reading the series of exposes in the media time and again why should you be getting angry? What questions should you be asking? And what answers should you be seeking. The rich, after all, have always stolen. From the banks, from governments and, most of all, from the poor. So what’s new this time?  You should bother precisely because now there is a difference. The essence of free markets is fairness of opportunity and accountability. Free markets run on impartial regulation, prudential norms, protection of investors’ money from risks other than what an instrument of investment justifies for the returns promised.


This Day Light Great Bank Robbery euphemistically called as NPA  is not about companies taking legitimate market risks. It’s about total subversion of the principles of free markets. So, here is the first question you should be asking. Why is it that your bank pays only 4 % or so on your fixed deposits but charges 10 per cent on your housing loan? Why should you pay 13 per cent on your car loan? And why is it that you so often read on the front pages of the pink papers about fresh government bailouts for your financial institutions? This money, too, comes out of your pockets, your common tax kitty.


In civilised countries with free economies, banks work on spreads of no more than two per cent. In India it is four. So, overseas, if your savings bring you four per cent interest, your housing, loan would cost no more than 5.5 or 6. Here, you first pay for the inefficiency of your bank, the overheads and the bloated bureaucracy.


Second, you also under-write your bank’s Non Performing Assets (NPA’s). The big guys steal, then get write-offs or bailouts. You and I meanwhile keep the banks afloat by paying that additional spread on our borrowings.


A good question to ask, before that is done, is: who were the people sitting on its board when these loans were given, where are the defaulters now and do their personal wealth, lifestyles, match the bankruptcy of their lender? If it doesn’t, why should we tax-payers fund its revival?

But banks are always known to lose money and big banks lose big money. So, if you still think why you should bother, here is a story former Prime Minister V.P. Singh used to tell in the Allahabad parliamentary bye-election of June 1988 to explain to mostly illiterate villagers why they should be angry about the Bofors scandal.


‘‘Your house has been burgled,’’ he would say, and then explain how. ‘‘When you buy a matchbox for 50 paise, five paise go to the government as tax. With this the government builds your roads, hospitals, bridges, schools, buys guns for your army. This is your money. It has been stolen. That’s why I say, your house has been burgled.’’


What should worry us the sheer extent of the exposure to such accounts.   Losses to the tune of Rs 10,000 crores in just two accounts will shake the whole industry.  Even the wage revision due from November 2012 will be affected It will be the Honest , hard working   who will suffer - more pressures for profits, denial of decent wage hike,  no updation of bank pension etc. The total employees in the banking sector (private as well as public sector) are about 9,00,000. Do you know that how much loss of Rs 10,000 crores will work out per employee of banking industry as a whole.  It is about Rs 1,11,000/-.  Thus, if banks fail to recover from these companies, then each one of you (each peon, each clerk and each officer in the banking industry) will lose more than Rs 1 lakh.  The cost of 45% increase in wage load demanded by NUBE   will work out  to  mere 8% recovery of the  restructured loans as on 31-03-2012  which would have been other wise classified as  of NPA’s  without costing any additional exchequer  to the banks  if they have the will to recover !



Looking back, the sequencing of financial sector reforms indicates that the move to set up holding companies to provision NPA in balance sheets is precursor to consolidation of public sector banks   in anvil. Logically, the next step would be the dilution of the government's stake in Institutions, or their outright sale to private and foreign banks in a "strategic partnership". Seen from this perspective, the measure fits with the proposed legislation to lower the government's stake in PSBs to 33 per cent. That, in turn, would be in tune with its game plan to withdraw the state from the banking business, leaving the field free for free-wheeling private and foreign financial entities.


That is why we say that "Financial Reforms" and NPA’s &Scams are like an Object and its Shadows!

The only bright side of the 1992 scam—it revolutionised the market infrastructure, Too little has been recovered and too many cases are unresolved, reducing the scam trial to a farce .Justice or Farce?


What a far cry all this is from 1956, when Justice MC Chagla said after the Haridas Mundhra scandal: “After very anxious consideration I have decided that this enquiry should be held in public. A public enquiry constitutes a very important safeguard for ensuring that the decision will be fair and impartial. The public is entitled to know on what evidence the decision is based. Members of the public will also be in a position to come forward at any stage to throw more light on the facts disclosed by the evidence. Justice should never be cloistered—it should be administered in broad daylight.” He also decided to take evidence on oath so that those who “gave evidence did so with a sense of responsibility and the knowledge of the consequences of giving false testimony.” The Mundhra enquiry was wrapped up in two years, including the appeal to the Supreme Court. That record has never been repeated in the 56 years since that scandal.


The sheer quantum of the NPA’s, a mild euphemism for outstanding loans owed to banks by persistent defaulters, is mind-boggling Although there may be some cases where for genuine reasons advances have become NPA’s, in most cases borrowers turn defaulters wilfully.
Instead taking drastic and stringent  action is taken against defaulters such   as  : confiscation of the properties of willful defaulters, imprisonment, and blacklisting for all future advances and loans  the  government and bankers have resorted often to bail out packages, including this preposterous , retrograde step  of setting up of holding companies as mentioned above  to raise capital to  provision for NPA ‘s present and future , which is bound to cause  increase in NPA  time and again .


Further with the supervision, Autonomy, power, and control vesting with the   holding company, or leader of the consolidated bank, its Board (as the case may be) will become omnipotent and the 19 nationalized banks boards will be   rudderless subsidiaries, having powers of recommendatory nature to the holding company.  The major fall out of this move is that the independent settlements which the union have hitherto with their respective banks on various HR- maters which will be send to archives of history and will be dictated by HR policies prescribed by the holding company, under the guise of uniform HR policies in tune with the anti-employee Khandelwal committee recommendations, virtually resulting in their de- unionization in the long run in their respective   banks.


Therefore it becomes clear that these massive NPA’s well entrenched in the Indian Banking system is a cancerous growth that represented by unclean economy will not disappear by half hearted palliatives. It requires a sustained chemotherapy and drastic surgical operation. Frequent resorts to amnesties such as waiver, write off, etc must stop. At the fundamental level attitudinal changes to book the culprit defaulter, under criminal offence, even though they lie today under the pale of present day legality. Obviously so long as profits remain as the prime factor, such friendly attitude toward tax evaders, black marketers, and willful defaulters – daylight robber barons of Public Money, are likely to persist. Hence it is also essential to rearrange the hierarchy of social and economic objectives consistent with long term interest of common man otherwise, crony capitalism, and, NPA scams, era of other scams will continue to grow from strength to strength.

Hence, NUBE has suggested measures for recovery such as:


1.       Overhauling of banking laws making recovery easier;

2.       Attachment of personal properties of the defaulting borrowers;

3.       Debarment of these defaulters from holding any public office or contesting in elections;

4.       Declaring willful default in repayment of bank loans as criminal offence.


If steps as suggested above were taken, the NPA position of the Public Sector Banks could have been much lower than the international standards.  Because of the staggering portfolio of NPA’s, the social lending activities under the priority sector credit have become the casuality affecting our agrarian society.  It may be mentioned, in this connection, that NPA’s caused by industrial sickness are not signs of failure of banks but failure of industrial and macro-economic policies of the Government of India.  The extent of such NPA’s in banks should be tackled separately.



With the tumble down of the global financial sector and economic melt-down, the message is clear. The imperialist globalization lobby that consistently imposes banking and insurance sectors reforms must be opposed as a part of anti-imperialist struggle in India. India is already in deep economic and financial crisis in the severe impact of economic recession in the whole capitalist economy.

The struggle in the banking sector is intricately linked up with the struggle against imperialist globalization programme. The myth of globalization propagated as a savior of the people and robust growth and development has already tumbled down like nine pins in the centers of capitalism. It is time to expose, fight and unite against banking sector reforms in the interest of the country and its people.


“Those who take the meat from the table

teach contentment.

Those for whom the taxes are destined

demand sacrifice.

Those who eat their fill speak to the hungry

of wonderful times to come.

Those who lead the country into the abyss

call ruling too difficult

for ordinary folk”

-Bertolt Brecht













“ That the basic criterion of determining the lines of advance must not be profit but social-gain, and that the pattern of development and the structure of socio-economic relations should be planned that they result not only in appreciable increase in national income and employment but also in greater equality in incomes and wealth. Major decisions regarding production, distribution, consumption and investment, and infact all significant socio-economic relationship, must be made by agencies informed by social purpose.

-Resolution of the Lok Sabha

-December 1954.



“..Public ownership and control of the commanding heights of economic and its strategic sectors were considered an essential aspect of the new social order being built up in India. Financial institutions are amongst the most important levers that any society has at its command for the achievements of its social and economic objectives. The nationalization of major banks was a significant step in the process of public control over the principled institutions for the mobilization of people’s savings and canalizing them towards productive purposes. The Government believes that this step would help the most effective mobilization and deployment of national resources so that national objectives would be realized with a greater degree of success”


-Smt. Indira Gandhi 19-7-69













“ The Banking system touches the lives of millions and has to be inspired by large social purposes and has to sub-serve national priorities and objectives, such as rapid growth in agriculture, small industries and exports, raising of employment levels, encouragement of new entrepreneurs and its development of the backward areas. For this purpose, it is necessary for Government to take direct responsibility for the extension and diversification of banking services and for working of the substantial part of the Banking system.


-Objectives of the Banking Companies (Acquisition and Transfer of Undertakings) Bill, 1969




(A) Merger Mania - Part I : Overview of Bank Mergers - Government Moves







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