Dr. Ashwani Mahajan
In the last few years, rising NPAs of the banks are giving sleepless nights to not only banks, but also the government. It is feared that if no suitable and quick solution is found for this problem, banking system and therefore the financial system of the country may be in big trouble. Given the fact that huge amount of resources are in trouble, banks these days are shying away from new lending and are happy investing their surplus in Government bonds.
In the recent past, Government, courts and enforcement agencies are seemingly quit strict, as far as recovery of loans is concerned. Name of a Rajya Sabha MP till recently; and owner of country’s largest liquor company, Vijay Mallya has been making headlines in the recent past as a big wilful defaulter. However this is also true that rest of the big bank defaulters are yet to be brought to the public notice, as RBI has not been allowing to declare the names of big (even wilful) defaulter.
Stressed Loans on Rise
If the repayment of a loan is not made for 90 days, then it is classified as a non-performing asset (NPA). Sometimes such loans are restructured, even before they become NPAs; and their repayment is postponed to a future date. Sum total of loans termed as NPAs and restructured loans, is called stressed loans; as repayment of principal and interest thereon is doubtful. According to the latest data nearly 2.6 lakh crores of bank loans are stressed and the percentage of such stressed loans in total loans of banking system is on rise. It is notable that in March 2015, total of 11.1 percent loans of 27 public sector banks were stressed, which increased to 11.3 percent by September 2015. It is being said that if this situation does not improve, 1.14 lakh crores of bank loans may be lost.
Stressed loans are divided into two parts. First, loans which are wilfully not paid and such borrowers are categorised as wilful defaulters. These borrowers are those who have huge/sufficient properties; and therefore loans could be paid easily. However, they are not repaying loan and interest, citing business losses, as reason for their default. Second, are the loans, which borrowers are unable to repay due to recession in the economy and resulting losses to the business. Recession world over has been impacting prices of metals and consumer and business demand; and this has been causing losses to the industry. Naturally, due to recession repayment of some loans has become uncertain.
Strictness With Wilful Defaulters
In the recent past, we have two good examples, where defaulters have bowed down strictness. First example is that of Sahara, where Sahara group owed nearly rupees 20 thousand crores to small depositors. Sahara chief Subrat Roy was put behind the bars and the group and then he agreed to repay. Second example is that of so called ‘Poster boy of NPAs’ Vijay Mallya, who fled the country; however, when his passport was impounded, he indicated to repay loan. Though, he is yet to be brought back to the country and money is yet to be recovered, however, bankers have started counting his properties, which could be auctioned in due course of time.
Naturally, due to rising worries of the banks, Government is also having sleepless nights and has been taking various steps to deal with the situation. Generally, business loss is given as the pretext of non-repayment of loans and limited liability provisions, come in way of recovering loans by auctioning personal property.
Budget 2016-17 has made a provision of rupees 25000 crores for the recapitalisation of banks, to deal with the menace of NPAs. Government says that banks have to first initiate action to recover bad loans, to make them eligible to get support from bank re-capitalisation fund. This stipulation may incentivise the banks to recover stressed loan. We should keep in mind that during the previous Government’s regime, many loans were disbursed, which were not according to normal banking norms. Therefore, it is possible that some of these loans may not be recoverable. However, there is a big number of wilful defaulters, who have sufficient assets to make repayments.
Names of such wilful defaulters should be made public. There is a possibility that they may repay their loans. There is a quotable example of JP Associates, developer of Yamuna Express Way, who is trying repaying his loans by selling his properties. Many big builders are also doing the same.
Government is bringing a new bankruptcy law; and the Bankruptcy Code Bill has already been passed by both the houses of the parliament. It is expected that after this law is made, action for recovering of loan could be expedited and individuals, companies and partnership firms could be declared bankrupt and there assets could also be attached and auctioned to recover loans. In view of the problems being faced by banks in attaching Vijay Mallya’s assets held in foreign countries, this law assumes significance.
One can conclude that in view of the problems being faced by Indian banks, mostly public sector banks, to bring them out of crisis and take the economy forward on the path of faster economic growth, we need to take stringent steps. Banks don’t think much before using strict measures against ordinary borrowers, however it is regretted that even the names of big borrowers are not being made public. Need of the hour is that the name of the defaulters be made public and all measures be adopted to recover loans (which is actually public money) from them.
(The author is Associate Professor, PGDAV College, University of Delhi)
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