Mazdoor Ekta Lehar interviewed Comrade Vishwas Utagi, Vice President of All India Bank Employees Association(AIBEA), on the rising bad loans or Non performing Assets of the Public Sector Banks(PSB)
Mazdoor Ekta Lehar (MEL):What is a Non Performing Asset(NPA)?
Comrade Vishwas Utagi (VU): The people of India put their money in the PSB’s. They get interest on this money. The same money is lend by the banks for commercial purposes. The bank makes its profit by lending to commercial borrowers at a higher interest rate than it gives its depositors(the people of India). The major commercial borrowers are the big industrialists who borrow this money and set up their industries. It is to be noted that the majority of industrialists do not set up their industries with their own money but with the money borrowed from banks. A part of the profits of these industrialists is used to pay back interest charged by the banks. When a company refuses to pay back the money that it has borrowed, that loan is called a bad loan or Non Performing Asset (NPA). The banks also lend to the Governments both Central and State Governments.
Before a loan becomes classified as an NPA, it can go through an intermediate stage wherein it is classified as a stressed loan. The borrower expresses his difficulty in making the return payment and the banks then restructure the loan giving him more time to repay the loan as well as sometimes offering a lower rate of interest for repayment. (This is of course given only to big corporate defaulters. The small defaulter is immediately penalised and his assets taken over by the bank.) Even after restructuring the loan, if the borrower refuses to pay, then the loan is classified as a bad loan or NPA.
MEL: What is the current level of the NPA/bad Loans of the PSU banks?
VU:The NPA’s of the PSB’s have been increasing at a steady rate especially since the last Global Financial crises of 2008-2009. In December 2014 the NPA’s stood at Rs 2.73 lakh crores.In December 2015 they had risen to Rs 4 lakh crores. This figure is an increase of 450% of the amount of NPA in 2011. As a % of the total loans that are given by the banks, this has also been steadily increasing. In March 2011, it was 2.32% , in September 2013, it was 4.82% and in December 2015, it had increased to 7%. This level of NPA is the highest in the world!
If you add the current stressed loan to the NPA, the amount is a huge Rs 8 Lakh crores, which amounts to 14% of the entire loans disbursed by the PSB’s. This amount is also nearly equal to the Central Governments entire tax revenue in 2014-2015 !
MEL: What is the effect of these NPA’s on the Indian Economy?
VU: These bad loans represent a financial setback for the people of India at three levels.
First, the bad loans represent a huge financial loss to the Government of India since it is the majority shareholder in all the PSB’s. As a result of NPA, the capital available from which the banks can make fresh loans reduces. To make up the shortfall in the capital of the banks, the government will tax the people of India. Therefore, this is an indirect loss to all the citizens, the majority of whom are we the workers and peasants.
Second, to grow, banks need to raise fresh capital. High levels of NPAs mean weak fundamentals and poor valuation in the stock market, hurting their ability to raise funds for growth. This, again, means insufficient capital to make additional loans. If the ability of public-sector banks to lend freely is impaired, there is likely to be an impact on the larger economy, which utilises the money available with PSB’s both for public spending(loans to government) as well as private spending(loans to private corporates) to boost growth.
Thirdly with a high level of NPA’s the profits of the banks will go down. In order to restore the profits, the banks will try to lower the deposit rate even if they cannot increase the lending rate. This will directly affect the returns that the people will get who have put their hard earned money in these banks.
MEL:What is the reason for these huge NPA's ?
VU:There are three reasons for the rising NPA’s. First due to worldwide recession and the crises in the capitalist economy. This means that genuine investments made are not producing sufficient returns. For example a) ABG Shipyard: Rs 11,000 crore, which was restructured and then became NPA b) Bharati Shipyard: Rs 8,500 crore c) Gammon Infrastructure: Rs 15,000 crore and d) Electrosteel Steels: Rs 9,600 crore .These corporates were lend such huge sums by groups of PSB’s and private sector banks. For example ABG Shipyard was lent Rs 11,000 crores by a group of 22 banks lead by SBI and also including private banks like Standard Chartered Bank. The above four corporates alone have Rs 44100 crores as NPA.
Second reason for NPA is wrong business decisions and inefficiencies. The case of Kingfisher Airlines is a typical example. This Vijay Mallya owned company was lend Rs 7000 crores by a group of 17 banks lead by SBI. SBI itself lend Rs 1600 crores. These loans are now NPA. While Vijay Mallya’s company has defrauded the Indian people he leads a high profile life owning Formula One Racing Teams and IPL cricketing teams.
The third reason is outright fraud where thousands of crores have been lend by Public Sector banks to fictitious companies who have very little by way of physical assets and investments. For example Winsome Diamonds, Deccan Chronicle Holdings and Surya Vinayak Industries,
MEL:While farmers are committing suicide being unable to pay back the loans we do not hear of suicide of NPA defaulters? The Banks are lenient on the big defaulters?
VU: Yes. India’s banking culture allows influential borrowers who default to get away without punishment. The small borrowers such as farmers do not easily get loans and that is why they have to approach money lenders, who charge exhorbitant interest, leading to default and ruin of the farmer. The big corporates are given huge loans without proper diligence and that is another reason for the huge NPA’s.
MEL: So what is the state of the PSB’s now?
VU:Today the NPA’s of many PSB’s are higher than their net worth. The current stock market quotation of 19 of 24 PSB is less than 50% of their book value and some at 75% of book value.
Major big PSU banks are reporting 3rd quarter(October to December 2015) losses amounting to very high figures. For example Bank of Baroda declared Rs 3,342 crores loss in third quarter 2015-2016. 11 PSU Banks together reported 12,000 crores loss in this period.
MEL: What about NPA of Private sector banks like ICICI?
VU: The NPA’s of private sector banks are much lower than PSB’s. For example the total stressed loans of Private banks is 6.7% as compared to 14% for PSB’s. But we must remember that 70% of all commercials loans are made by PSB’s.
MEL: What is the Governments strategy to tackle the situation arising out of huge NPA’s?
VU: According to information revealed by an RTI application, the banks have straight away written off Rs1.14 lakh crores from the NPA’s in the last two years 2013-2015. This is the worst part. Such a huge loan waiver and there is no national debate on this issue. This is a serious matter. The Banks claim that they are trying to recover the remaining but we all know how the influential are never punished.
It is also said that the Government will be putting in Rs 2.4 lakh crores to Rs 3 lakh crores into these PSB’s to cover the loss in capital due to NPA’s. This is money that the government earns from taxing the working people which will be recycled to the banks. This issue of NPA is not happening for the first time. It was AIBEA which highlighted this issue in 1998 and brought out a list of defaulters to PSB’s amount to Rs 50,000 crores at that time. However even after so many years the Government is following the same policies of writing off the NPA’s and reissuing fresh capital to the PSB’s by taxing the working people. Whether it is Congress or BJP governments, the approach is the same.
MEL: What are the demands of AIBEA?
VU: We are demanding a)Make Wilful default of bank loan a criminal offence. b)Order investigation to probe nexus and collusion.c) Amend Recovery Laws to speed up recovery of bad loans d) Take stringent measures to recover bad loans. e) Do not incentivize corporate delinquency f) RBI should periodically publish the list of bank loan defaulters.
Since the RBI or the Government is not publishing the list of loan defaulters, AIBEA is publishing the list containing the names of the top 400 defaulters of Public Sector Banks.
We are taking out a mass rally to Parliament on the issue of NPA’s on the 14th of March 2016, wherein 30,000 bank employees from all over India are expected to take part. Our demands are “Peoples Money for Peoples Welfare” and “National Savings for National Development and not for Private Corporate Loot”.
MEL: We fully support the just struggle of Bank workers led by AIBEA and oppose the loot of the peoples savings for the benefit of the capitalist class.