By Gyan Pathak
India is in election mode, and the Narendra Modi government takes special care of big companies that are not only helping the BJP through finance, especially through electoral bonds, but also through making favourable propaganda on behalf of the government. In the pre-election year 2022-23, Rs 2.09 lakh crore loans taken by them had been written off.
In the seven years from 2014-15 to 2020-21, bad loans of over Rs10.7 lakh crore were written off. While total loan amount written off in 2020-21 was Rs2,02,781 crore, it was Rs1,74,966 crore in 2021-22, which rose to Rs 2,09,11 crore in2022-2023. Thus, the total write-offs since 2014-15 to March 31, 2023 has risen to Rs14.49 lakh crore, which was simply vanished from the banking system of the country in the first nine years under PM Narendra Modi.
It must be worth noting that number of bank frauds in 2013-14 were just 4306 which more than doubled by 2021-22 to 9,103. By the end of the financial year 2022-23, the total number of fraud cases in the banking system were even increased to 13,530. About 49 per cent are digital frauds, but it’s a matter of serious concern that percentage of frauds committed in ‘demonstrable active connivance’ of borrowers-officials are still very high, as it has been said in a petition in the Supreme Court of India.
Bank write-offs aided banks to clean their balance sheets and bring down gross non-performing assets (GNPA) to a 10 year low of 3.9 per cent of the entire loans given up to March 2023. GNPA in 2017-18 was Rs10.21 lakh crore which was reduced chiefly by write-offs to Rs5.55 lakh crore by March 2023. It helped the Modi government and the banking system of the country performing well as far as reducing NPA is concerned.
Moreover, nobody knows who are the big companies favoured by the government in way of writing of their loans. In December 2022, the Ministry of Finance has said in a written reply in the Parliament of India that write off NPAs is a part of the regular exercise of banks to clean up their balance sheets, avail tax benefit and optimise capital. It was also said in the reply that with regard to the list of defaulters who defaulted more than Rs1 crore to the public sector banks, RBI has informed that borrower-wise information on written off loan amounts is not maintained by it.
Government defends itself by saying that the written off loan amounts by banks would remain in the books of banks as unrecovered loans. Theoretically, they could be recovered. However, as per the RBI records the banks could recover only Rs 1,09,186 crore in the last three years as against the written off amount of Rs5,86,891 crore, that was only 18.60 per cent, an abysmal rate of recoveries from the written off loans. During these three years total defaulted loan amount was to the tune of Rs10.32 lakh crore as per the back of the envelope calculation. It means almost half of the amount of defaulted loans were written off.
If we include the written-off amounts, the total NPA ratio would be 7.47 per cent of the advances. However, to improve performance on paper, the written off amount is not considered as NPA, and hence the banks report the NPA of only 3.9 per cent.
The last Financial Stability Report of December 2022, has noted, “We are not yet out of the woods,” warning that the GNPA ratio of Public Sector Banks may swell to 9.4 per cent by September 2023. The GNPA ratio may also “go up to 5.8 per cent for private banks and to 4.1 per cent for foreign banks,” it had warned.
According to the RBI’s Financial Stability Report (FSR) for June 2023, if the macroeconomic environment worsens to a medium or severe stress scenario, the GNPA ratio may rise to 4.1 per cent and 5.1 per cent, respectively. It should also be noted that the internationally accepted norm for NPAs are only in the range of 1-2 per cent.
After cleaning up bank balance sheetsby way of writing off large amount of NPAs, the RBI has ridiculously said in its latest Financial Stability Report of June 2023, that soundness of the banking sector has improved as capital buffers reached all-time highs. Asset quality strengthened, with multi-year lows in GNPAs and decline in restructured assets. Liquidity improved as customer deposits and liquidity coverage ratio (LCR) increased. However, it has admitted that increase in operating expenses led to marginal deterioration in efficiency.
The system-level gross non-performing assets (GNPA) ratio and net non-performing assets (NNPA) ratio have sharply fallen from a high of 11.5 per cent and 6.1 per cent in March 2018 to 3.9 per cent and 1.0 per cent in March 2023 respectively, the report said. Writing off NPAs have just masked the dismal performance of the banks, and enabled their balance sheets appear healthy.
Healthier balance sheets are catalysing sustained and broad-based pick-up in the momentum of credit growth, with credit flow improving to all sectors of the economy the RBI report says, but it could not mask the reality that “India’s credit-to-GDP gap remains negative since March 2013, reflecting still muted credit absorption in India relative to advanced and emerging market peers.
Such a situation increases economy’s sensitivity to monetary tightening and in turn impact banks’ balance sheets, which is then again cleaned by writing off debts. Calling this healthier balance sheets by RBI is a joke. The practice of writing off loans of big companies must stop.(IPA Service)