Economic news during the month of February was dominated by various reports of Indian banks facing a major problem due to a steep rise in “non-performing assets”. Side by side, there has been repeated coverage of the pre-budget debate, dominated by a so-called dilemma of striking a balance between the need to accelerate “growth” and the need for maintaining “fiscal responsibility”.
Bad loans of Indian banks
Non-performing assets are those loans, given by banks, where even the interest is not getting paid in time for many months. If even the monthly interest is not being paid, the bank has to make provisions for the risk that the principal may not be returned. The Reserve Bank of India is insisting that commercial banks should either take effective steps to recover its capital at risk, or assume that it is lost and make adequate provision for this loss in its account books. The total value of such bad loans advanced by Indian banks has risen to about Rs. 8,00,000 crore at the present time, which is nearly 10% of total bank deposits.
The biggest of the capitalist companies receive the largest amount of loans from banks. The total loans given by banks to electricity generation companies is Rs. 5,80,000 crore, which is 22% of bank lending to all industries. Steel companies have borrowed Rs. 2,80,000 crore. According to Credit Suisse, just 10 capitalist conglomerates account for 12% of outstanding bank loans. The owners of the defaulting companies are telling banks that since their profits have declined, or turned into losses, they cannot service their loans.
Banks themselves admit that there are many capitalist companies that deliberately do not return bank loans. Banks call them ‘wilful defaulters’. There were almost 6000 such capitalist borrowers who had taken loans of more than Rs 25 lakh each as on 30th September, 2015. The total unpaid loan amount of these wilful defaulters was more than Rs 60,000 crore. In many cases, capitalists siphon off their profits while showing losses on the account books, and then negotiate a deal with the bank to convert the company’s debt into equity. In other words, they hand over ownership of the loss making company to the bank by way of settling the debt. They walk away with their profits while the burden of losses is borne by the public.
If a peasant or small business takes a loan from a bank and does not pay the EMI for several months, the concerned bank immediately takes steps to recover the loan, by seizing hold of the assets that it holds as security. However, when big capitalists default, the banks do not respond in the same way. Senior managers of the banks hold high level meetings with officials of the RBI and the Ministry of Finance, to find some way to shift the burden of the bad loans on to the backs of the public at large. Thus, there is one law for the big capitalists and another for all others. It is reported that Rs. 1,14,000 crore of bad loans were waived between 2013 and 2015.
The big capitalists are the bad borrowers, the irresponsible clients. Various deals are being worked out to make others bear the burden of the irresponsibility of big capitalists. Part of the burden has already been shifted onto smaller borrowers, including the recipients of housing loans and other consumer credit. During the year 2015, RBI reduced the interest rate on its loans to commercial banks by 0.75 percentage point. However, the banks reduced the rate on housing and consumer credit by only 0.25 percentage point. The recipients of such credit are being charged a higher rate to make up for the bad loans of big capitalists.
Bank workers’ unions have been persistently demanding that the names of the biggest defaulting companies be made public. Banks have been refusing to do so under the pretext of protecting their clients’ confidentiality. In other words, capitalists who violate their duty of servicing their loans have enjoyed the “right” to remain hidden from public view. This blatantly unjust stand has now been brought to question with the Supreme Court ruling that RBI has a duty to uphold the interest of the public at large and has to “comply with the provisions of the RTI Act and disclose the information sought by the people”.
Behind the current talk about “bank loan crisis” looms the threat of privatisation. Those state-owned banks which end up showing big losses on their books could be declared as commercially unviable and sold at a discount to private owners. Bank workers must beware of this hidden agenda behind all that is going on in the name of crisis management and restructuring of bad loans.
Public Debt – a form of robbing the public to guarantee capitalist profits
The debt owed by the Government of India is estimated to reach the enormous figure of Rs. 69,00,000 crore by the end of March 2016. Of this, the largest part, about Rs. 59,00,000 crore, is held by commercial banks and insurance companies. It is the most secure part of their portfolio, carrying zero risk. The government guarantees regular monthly debt service payments, financed by the revenues collected from the people. Interest payments are the largest item of recurring expenditure in the Union Budget.
Interest income is nothing but the claim of a share of capitalist profit, on the part of those who loaned part of the capital invested in productive activity. When a bank lends to a private company engaged in some sector of social production, out of the surplus value generated, a portion gets paid to the bank as interest. When a bank lends to the government, which is engaged mostly in activities of a non-commercial nature, the interest it claims is of a thoroughly parasitic nature. It is not a share of surplus value because the government does not generate a surplus. What is being claimed is a share of public revenue. It is a form of robbing the entire people in order to guarantee returns on the loans advanced by the banks. The money-lenders get treated as the first claimant on the revenues collected by the Government of India.
“Growth” and “Fiscal Responsibility”
The big capitalists and government spokesmen are rejoicing that the rate of growth of GDP in India is higher than most other countries of the world, including China. The vast majority of the population, consisting of workers, peasants and other working people, are not satisfied with the growth in their living standard, which has been negative for most of the toiling people. The growth of 7.5% which government spokesmen boast about is in fact a growth in just some selected sectors of production, alongside a massive growth in parasitic, unproductive and destructive activities including militarisation, speculation in land, commodities, shares, etc.
According to media reports, Finance Minister Jaitley has been facing conflicting pressures from within the ruling circles regarding the formulation of the Union Budget for 2016-17. On the one hand, he has been urged by various big capitalist conglomerates and economists to increase public investment to make up for the lack of growth in private investment. On the other hand, he has been urged by the head of the Reserve Bank and of various international credit agencies to contain total government expenditure and stick to the deficit target of 3.5% of GDP, allegedly to ensure “fiscal responsibility”.
Fiscal responsibility is a concept that has been created by the biggest money-lending institutions of the world. It means that the State should be a responsible borrower. It should service its debt promptly. It should not get so highly indebted that it is unable to repay. It should not also stop borrowing altogether. It should remain creditworthy and keep borrowing every year, so as to provide a zero-risk guaranteed source of interest income for the big banks and insurance companies. This is the definition of fiscal responsibility that is being thrust on the peoples of all countries, based on the lopsided world outlook of money-lending institutions.
The responsibility of the State to its citizens is not on the radar screen of the IMF, World Bank or the Reserve Bank of India. According to their anti-human outlook, the claims of finance capital supersede the interests and claims of all other classes and strata of society. The big money-lending institutions, that is, the commercial banks and insurance companies, are linked by a thousand threads to the monopoly corporations operating in agro-business, mining, industry, transport and other services. The big capitalists who together control the principal means of large-scale production, trade and finance control the State and shape its policies. The State works for their enrichment. State intervention in the economy is guided by the principle that profits belong to India Incorporated while losses are to be loaded on the heads of the public.