By
Devidas Tuljapurkar
The
Indian banking sector is in deep crisis. The banking system has had no direct
exposure to the subprime mortgage assets or to the failed institutions. It has
very limited off balance sheet exposure. Secondly India’s growth is driven
predominantly by domestic consumptions and domestic investments.
However
with the advent of globalization, India’s two way trade, that is trade
globalization, financial integration with the world which includes Indian
corporate sectors’ access to external funding, India has been hit by the
crisis. Despite India not being fully globalised, problem has been affected due
to external shocks and d o m e s t i c vulnerabilities.
The
Indian Financial system largely escaped unhurt from the 2008 global crisis with
the intervention from regulator that is RBI but it is difficult to ascertain
precisely. It is likely that sizeable portion of today’s huge NPA can be traced
back to the projects undertaken before 2013 when false sense of security was
being given that Indian economy and finance is immune to global shocks.
On
this background present data on NPA is revealing.
- 2000
to 2010, growth in NPA was minus 6.20 per cent while 2010 to 2015 it was plus
365 percent and in 2015 to 2018 it was plus 221per cent. - 2009-10
to 2017-18, addition in NPA is 18,84,507 crore. - 2009
to 2018, Banks have provided 8,80,277 crore towards NPA out of profits - 2010
to 2018 Banks have written off bad debts amounting to Rs. 4,23,428 crore.
Present figure of NPA Rs. 8,42,291 crore. is excluding figure of write off. - In
top 12 NPA accounts amount involved is Rs. 2,53,729 crore which is more than 25
per cent of total NPA.
This
revelation of NPA largely came on surface only after Asset Quality Inspection
by RBI at the instance of the then Governor of RBI Raghuram Rajan. It is not an
overnight addition in NPA, which till this time were suppressed by resorting to
policy prescription provided by the same regulator that is RBI such as
Corporate Debt Restructuring which commenced in 2001 and Strategic Debt
Restructuring which commenced in the year 2015. Development Financial
Institutions like ICICI and IDBI were converted into commercial Banks
consequent upon which corporate was left with no other choice than to approach
to commercial Banks for their need for long term funding for infrastructure and
core sector projects more particularly consequent upon credit crunch in global
market due to Global Financial Crisis. Thus it can be fairly concluded that the
present crisis in Indian Banking has its roots in the Global Financial Crisis
and precisely this is impact of the crisis on Indian Banking System.
This
impact is not only circumscribed to NPA but overall Indian Banking is passing
through one of the worst crisis in the history. Since last three years Banking
in public sector is almost stagnant. Of 21 Public Sector Banks only two banks
are showing profits. With the continued losses, capital of those banks is
eroded. Thanks to central government with whose support those banks are
surviving. It can be perceived that overall situation in Indian banking more or
less is similar to US in 2008. As stated in Financial Stability Report by RBI
of total credit, in the corporate shares of 55 percent, 86 percent is NPA. This
indicates that present crisis in banking is the crisis with the corporate who
have borrowed from the banks disproportionately by resorting to lapses in the
system and also to so called imaginative and innovative financial instruments,
products and services.
While
big bang financial sector reforms could not be pursued through mainly because
of opposition from left parties and Trade Unions, incremental liberalization
and integration with the global financial markets continued in India. The
reason why India has not witnessed financial crisis as is witnessed in US or
elsewhere is mainly because the Indian financial system is far more regulated
and public sector dominates the market.
However
policy makers in India are pursuing consistently to follow the path of
liberalization, globalization and privatization in all spheres of the economy
including finance and banking. The present crisis erupted in IL & FS is the
live example wherein ultimately government was forced to intervene and postpone
the crisis. May be this crisis will precipitate in NBFC and Mutual funds and
possibly with this entire financial sector once again may have to pass through
rough weather.
The
Indian economy is more connected with the global financial system today than it
was decade before. The exposure to FII has increased drastically which tends to
be volatile making the economy more vulnerable to any external shocks.
There
is a trust among the people in the country about the strength of the banking
system mainly because public sector banking dominates the scene. Thus despite
majority of those having booked the losses public continues to have faith in
them. Here it is the public sector character which matters and not their
capital or compliances with BASEL or otherwise. Now present political
dispensation at the centre is taking position contrarily and is initiating the
discourse in favor of privatization instead of recovering huge NPA and thus to
strengthen Banking which may prove to be disastrous. (IPA Service)
The writer is
Joint Secretary of All India Bank Employee Association (AIBEA)
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