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A hard hitting write up.

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Why NPA ordinance gives an easy
escape route to corrupt bankers
Nalini R Mohanty
The Firstpost Online
Published on May 12, 2017
Mumbai, May 12: An Economic Times report, quoting SBI chief Arundhati Bhattacharya, said: “The new ordinance that empowers RBI to nudge banks to deal with stressed assets will improve transparency and provide higher assurance when dealing with bad loans." The news report went on to add: “India’s largest lender had lobbied to involve government agencies in dealing with bad loans." SBI chairman has reasons to be happy that her lobbying bore fruit; that after resorting to reckless banking practices for years, when the time came to take huge haircuts on the bank’s capital position, the bankers would not to be left to take the blame alone. They would now get the protection of the RBI and the government, courtesy the new ordinance. With protective arm of government agencies around them, the bankers like Arundhati Bhattacharya are now assured that the long arm of the law would not be able to reach them. The ordinance that carried out amendments to the Banking Regulation Act, 1949, last week has empowered the RBI to set up oversight panels that will shield bankers from any probe by agencies looking into loan recasts. We were told by the honourable finance minister that there was a decision paralysis in banks as bankers were afraid of investigations and enquiries if they write down big losses. These bankers also did not want to suffer the fate of the IDBI Bank chairman Yogesh Agarwal who was arrested last January as the CBI investigation found that he had advanced loans of Rs 950 crore to Vijay Mallya’s Kingfisher Airlines (KFA), in contravention of established industry practices. After all, it was not the IDBI Bank alone; SBI and several other public sector banks had advanced loans to Mallya’s KFA in complete disregard of its credit rating. When Vijay Mallya declared bankruptcy, then apart from the IDBI, the chairmen of at least half a dozen public sector banks including the SBI, should have been sent to jail for advancing money to KFA without due diligence – without taking cognizance of the fact that Mallya was fraudulently diverting most of the loan advances abroad instead of investing in the revival of the KFA. Arundhati Bhattacharyas et al were complicit in this fraud, going by the CBI’s parametres. No wonder, all these bank chiefs cried foul when Yogesh Agarwal was taken to custody. They called his arrest an ‘ unwarranted retribution’ and threatened that if the loan sanction process was questioned by the investigative agencies, then the banking industry would be thrown into the chaos and India’s economy would be derailed. These worthies claimed that even if they have sunk Rs 10 lakh crore of the public money into the drain, they must not be questioned as they did it in good intent for larger national interest, even as it may have turned out to be national fraud! In this banker-business complicity, Vijay Mallya was only one player, albeit a small player, with just about Rs 9,000 crore loans. But then our wily bankers have advanced much bigger loans to many more players and are now saddled with just the rump. Take the case of the Bhushan Steel; it is a company that banks happily poured money into without a check on where the money was headed.The company’s debt now stands at over Rs 46,000 crore and its market capitalisation today is less than Rs 2,000 crore! But then KFA or Bhushan Steel are not isolated examples. There are scores of such companies that have diverted much of the money advanced to them and now that banks and the RBI have become pro-active to settle the debt issue once and for all, these business groups are happy that they would get away by forfeiting only a fraction of what they had received. The banks are left with no option but to write off a major part of their loans. In fact, the Economic Survey this year put it pointedly: “About 33 of the top 100 stressed debtors would need debt reductions of less than 50 percent, 10 would need reductions of 51-75 percent, and no less than 57 would need reductions of 75 percent or more.” Why have things come to such a sorry pass? Just about a year ago (April 13, 2016), an SC bench headed by the then Chief justice of India T S Thakur had raised a similar question to the RBI: “Why does it happen that some people take loans worth thousands of crores of rupees to set up companies, declare the companies sick and enjoy with public money? On the other hand, why are poor farmers harassed for repayment of a few thousand rupees they take as loan in distress and made to suffer?”. The blunt answer to this question is the unholy nexus between some bankers and some businessmen; bankers wink at credit rating principles while advancing big loans while they are meticulous in enforcing these principles while advancing relatively smaller loans to retail customers who have no capacity to bribe them. That is the irony: the State Bank of India chairman, Arundhati Bhattacharya, cried hoarse when the Uttar Pradesh government decided to waive off the outstanding loans of the marginal farmers. She said that farmers’ loan waiver adversely affected the credit discipline; once their loan is waived, these farmers begin to believe that it would be waived again and again and get into the habit of not paying back, she said. But the same SBI chairman who insists that farmers must be made to pay back the few thousand rupees they take as loan, despite the adverse weather conditions and crop failure, has no qualms in going around pleading that the businessmen who have taken a few thousand crores of rupees as loan must be shown mercy and their loan should be written off or whittled down as their failure to pay is on account of adverse economic conditions, not bad intent. In Ms Bhattacharya’s scheme of things, the loan waiver given to the big business does not affect the credit discipline! No wonder, the bank she has been at the helm has taken the lead in writing off more than Rs 400,000 crore of outstanding loans of businessmen since 2000! That is the essence of crony capitalism. Bankers go on recklessly advancing money to the businesses (the suspicion persists that they would not do it without kickbacks) and they claim to do it in the larger national interest; after all, when the businesses thrive and prosper, the country’s economy would get a boost, they aver. But when the same businesses go bust, these bankers again plead mercy on behalf of these business houses, ostensibly again in national interest! Look at the series of interviews to TV channels that the SBI chairman has given in the last few days insisting that wilful defaulters are few and far between! No wonder, when the Supreme Court asked the banks and the RBI to furnish the list of businessmen who have defaulted on the repayment of loans of more than Rs 500 crore (mind you, more than Rs 500 crore) the likes of Ms Bhattacharya have stiffly opposed the plea saying that revealing the names of the big defaulters would undermine India’s economic stability! That is a signal how deep the business-banker nexus is. The crony capitalism would not, however, thrive without the patronage of the political class.The ruling politicians have invariably come to the rescue of the public sector bankers and the businessmen by allowing the massive write-offs of the loans and then recapitalising the banks for the lost money on account of the write-offs. When Finance Minister Arun Jaitley set aside Rs 70,000 crore for the recapitalisation of the public sector banks, the SBI chief Arundhati Bhattacharya had taken the lead to plead that the amount was peanuts and the public sectors banks needed much more money if they have to function normally for India’s economic progress! The public sector bankers clearly live by the principle: sink the taxpayers’ money in dubious deals and when you go bust ask for more taxpayers’ money to carry on the cycle! After all, the mai-baap sarkar is there to extend protection to them! So far, the protection from the political class had come in the form of huge recapitalisation of banks; now it has extended another form of protection by promulgating an ordinance last Friday (5th May) which would protect our bankers from the prying eyes of the investigative agencies. The circle of crony capitalism is now complete. We have institutionalised a system whereby bankers, businesses and politicians will have a cosy time, without someone lurking from behind. As always, the taxpayer will be asked to pick up the tab to sustain this cosy club.
It is a fair point. No doubt there is corruption in the system.

BTW, banks are supposed to have collateral in lieu of sanctioned loans. I am sure that did not materialize either.
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