The NDA government is in the process of overhauling the management and structures of public sector banks. The intention is good. Nothing much has changed in PSU banks’ management style since they were nationalized over four decades ago. However, the key questions of fixing responsibility of messing up with public deposits and trusts and awarding strong punishments to those helping bank fraud, including certifying faulty balance sheets as good for giving more credits, remain hazy. Hiring private sector executives may not help. Most large foreign banks flopped and sold in recent years under the massive burden of fraud were all so-called professionally managed private banks. Japan’s Dai-Ichi Kangyo, once the world’s largest bank, was just one of them.

At 2014-end, India’s 30 top bank defaulters were sitting on bad loans of over Rs. 95,000 crore or one-third of the entire declared non-performing assets of public sector banks. Big financial crimes by large and medium business houses, by way of their financial engineering, asset over-valuation and ‘bank loots’, should have put several of them and their bankers in jail for long years. In the 1980s, Dunlop India and Shaw Wallace and their bankers were among the biggest offenders in this regard. More recently, Ispat India and Kingfisher Air robbed PSU banks of over Rs. 5,000 crore each. Tax-payers or the public are indirectly made to pay for them by way of the government’s ‘recapitalisation’ of PSU banks. Also, permission is given to them to raise more equity capital from the public. Banks are rarely pulled up for massive annual loan write-offs. No one is held responsible. No one is punished.

PSU banks wrote off loans worth Rs. 1,06,170 crore in just last five years, according to the Reserve Bank of India. The gross non-performing assets (NPAs) of PSU banks at the end of last year stood at Rs. 2,60,531 crore. And, those 30 defaulters accounted for 36.5 per cent of these ‘badly sticky’ or irrecoverable assets. Bank defaulters even enjoy a kind of social protection from the government, which rarely discloses the names of defaulted companies and their owners. The employees’ unions, such as AIBEA, sometimes do. RBI governor Raghuram Rajan has expressed concern over the reliability of NPAs disclosed by banks. The actual figure of sticky bank assets could be much larger than what is officially reported. This is a real cause of worry.

India’s large commercial banks are mostly owned and controlled by the government. A borrower’s political profile often plays an important role to influence lending decisions. A former prime minister’s entrepreneur son was reportedly involved in the 1993 bank scam. Another top politician’s businessman son-in-law has been in the news for his involvement with one of India’s top real estate tycoons, running massive debt with nationalized banks and contingent liabilities. Law’s so-called long hands rarely reach them.

Meanwhile, PSU banks’ unpaid loans are ballooning. Their large bad loans, already high, rose 20 per cent over April-December period in 2014. Together, these banks account for 72 per cent lending in India. Their gross NPAs may have actually topped the Rs.2.75 lakh crore mark. The picture could have been much worse but for corporate debt restructuring by which borrowers reschedule loan repayments and tinker with interest rates. The gross NPAs plus restructured loans by the end of 2014 would amount to Rs.5.45 lakh crore (almost $88 billion). Infrastructure (including power, telecom, airports, roads, ports & rail), iron & steel, textiles, mining and aviation contributed significantly to the level of stressed advances.

Of the 26 PSU banks (including the SBI group), as many as 19 reported gross NPAs of five per cent or more in the last quarter of 2014. By 2018-19, the government wishes to infuse Rs.70,000 cr into PSU banks, including Rs.25,000 crore each during this year and next year. Even Moody’s think the amount is small to realistically cover the capital adequacy ratio of these banks. Unfortunately, the issue of systematic bank fraud by industry in India continues to get glossed over. (IPA Service)