Poor Can Hope For A Piece Of Bread, And The Rich Crores

By Dr. Gyan Pathak

The two pieces of news – first, Modi government made provisions for merely five kilogram cereals for 800 million individuals per month who were not able to even get food on their own during the pandemic, and second, they written off over 2.03 lakh crore rupees of loans during the same fiscal ending March 2021 to business and industries including the wilful corporate – make us think that poor can hope only some pieces of bread, and the loans worth crores of rupees taken by handful of corporate could be written off under Modi Raj.

Modi government has always been claiming that they put the nation first before everything else, which is their nationalism. If it is true, its assessment to help corporate first to save the nation during the pandemic year, must be more urgent in their view than anyone else, including poor, whose percentage has been pushed up by the pandemic, lockdowns, and containment measures to about 60 per cent of the population from about 24 per cent according to some international estimates. Have they assessed that the poor can wait for the nation and corporate need their loans written off first in the national interest? This question needs some serious thought in the present circumstances.

The allegation that the Modi governments functions in a way that benefits the corporate more than the poor common people seems not further proof than the present one of writing off loans to them, many of whom are wilful defaulters and not returning the loan amount to the banks, to the tune of over 10.7 lakh crore rupees in the last seven years since 2014, when Narendra Modi came to power. It is over half the amount announced as COVID-19 relief package in May 2020, which included all sorts of relief to all the people in the entire country. Even the Reserve Bank of India (RBI) had allowed banks to announce reliefs like loan moratorium for borrowers. The package included loans even to small venders at very high interest rates compared to the corporate, collateral free loans to MSMEs which reached them at snails pace, and loans to other sectors like farm, SHGs and so on also trickled down to them with great difficulties.

The total amount written off is Rs 2,02,781 crore for the year 2020-21. However, it is whopping Rs 11,68,095 crore worth of bad loans, or non-performing assets (NPAs), in the last ten years with most of the write-offs coming in the last seven years, the RBI said in an RTI reply to The Indian Express. This is almost 10.54 per cent of total non-food bank advances of Rs 110.79 lakh crore and very close to the government’s gross market borrowing of Rs 12.05 lakh crore projected for FY 2021-22 in the Union Budget.

It is indeed a very sad to note that out of the total write-off over 11.68 lakh crore in the last ten years, as much as over Rs 10.72 lakh crore were written off by the Modi government since 2014-15 when they came to power, that too at a time when banking sector in India have been suffering worst of its crisis in the last three decades, that too infested with numerous bank frauds in which big corporate borrowers, bank and government officials, and big politicians were found hand in glove in the nexus. Many of them even fled India, and some of the willing defaulters bad loans were even written off.

Why such a huge writing off was resorted to by the Modi government? There might have been two reasons – first to help the banks to whitewash their bad loan portfolio and show the country that the government has overcome the banking crisis, and second to help the corporate friends and favourites. Then there is also a political compulsion. The government also needed the people to be happy with them so they were provided with some pieces of bread to feel that Modi government is also working for them and providing means for subsistence. Should we not think such an act on the part of the government is merely shrewdness, a game played on common ignorant people in favour of corporate? Banks wrote off Rs 2,34,170 crore in FY2019-20, Rs 2,36,265 crore in FY2018-19, Rs 1,61,328 crore in 2017-18 and Rs 1,08,373 crore in 2016-17, the RBI has said.

Five banks, led by State Bank of India (SBI), wrote off Rs 89,686 crore in the fiscal ended March 2021, with SBI accounting for Rs 34,402 crore, the RBI said. Union Bank wrote off Rs 16,983 crore, PNB Rs 15,877 crore and Bank of Baroda Rs 14,782 crore in FY21.

All these have been done at a time when Modi government has been purportedly working to overcome the banking crisis. They have merged public sector banks to make them stronger, effective, and to enhance their performance. In the budget of the current fiscal, some public sector banks (PSBs) were announced to be privatized. And in course of carrying out banking sector reform, almost 75 per cent of the writ-offs were done by the public sector banks helping them to make their loan book and balance sheets decent. This is being done before selling some of them to the private sector is obvious.

These bad loans are technically called Non Performing Assets (NPAs), and these are written off only after all recovery measures fail leaving no chance at all of recovery even remotely. Even after the written offs, banks are supposed to continue their efforts for recovery. Legally such bad loans can be written off after over three consecutive quarters of non-payment of loans, and here lies the scope of manipulation for helping the favourites. Who were the favourites and who were not would be know only if the list of companies and their written off amounts would be made public by the banks, which they would not do unless are allowed to do so by the political bosses at the Centre.

The present exercise of writing off bad loans will enable banks to take off the amount from their NPA book, though the default loan amount will remain in the banks’ book entries. However, they would get tax benefit by merely writing offs. It is double loss to the nation, but is being allowed under the policy of the ‘nation first’ of the current dispensation at the Centre.

It should be noted, and it is written in the statutes of the Reserve Bank of India (RBI), that all the money deposited in the banks are of public, and therefore the public sector banks themselves are public assets. Therefore these assets should not be morally manipulated primarily in favour of some private corporate. PSBs are custodians of the public deposits and therefore they are not expected to squander the money.

Now comes the issue of technical write-off by giving a logic that they are not as harmful as a ‘write-off’ that is frowned upon by the people. Such a logic veils the fact that the technical write-off does serious harm by reducing the incentives to recover. Moreover, the banks resorting to partial and technical write-offs stop showing the remaining part of the loan as standard asset of the bank. Finally the loan amounts are excluded from the balance sheet making reduction in the taxable income of banks.

All these are done in closed doors, and therefore, banks must conduct themselves in transparent manner so that people should know the details who is doing what, who are getting benefits from the process, and whether there are murky deals behind write-offs. Allegations supported by general experience of the people are that big defaulters usually get larger benefit while the small time borrowers get smaller benefit that too on the mercy of the bank officials. These should not be kept as part of national secret, and the country must know the full details in a form that should be comprehensive and understandable to the people.

As for the recovery of the written-off loans, they range between 15 to 20 per cent, according to the people in the industry possessing knowledge of such things. It further deteriorates credit risk management system with even murkier deals than earlier stages of recovery. (IPA Service)