Someone who borrowed Rs 2.5 lakh 25 years ago could not repay the amount. The principal amount, interest and compound interest have run up to more than Rs 2 crore now. The bank decided to hold the guarantor responsible instead of the borrower. What followed was a move to evict Preetha Shaji and family from their house in Kochi recently and a wave of protest against the plan.
The bank may be legally right in holding the guarantor responsible for the loan default. Yet the officials have to face the crucial question whether they had discharged their duties properly. The banks do business with the money they receive from the public as deposits. The bank lends from that savings to increase its profit.
The loan amount of Rs 2.5 lakh was not a modest amount 25 years ago. So the bank was required, as per Reserve Bank of India guidelines, to check the borrower’s loan history, the purpose of the loan, its term and means at the disposal of the borrower to repay the loan. The bank officials were supposed to ask these questions to the borrower and the people who knew him.
Had the banks performed these duties responsibly and faithfully, the bad loans would not have ballooned so much. Even after borrowing the money, the bank has to watch closely the way it is spent.
The banks had earlier considered a loan as gone soured if the borrower defaulted payment of principal and interest installments for six months or more. Since 2003, any default of three months is considered a bad loan.
Had the bank proceeded with the legal options at the time of the default, it could have recovered the money from the borrower. It did nothing. This was typical of the bankers’ attitude towards the money entrusted to them by the public. All banks are guilty of such dereliction of duty to some extent.
The cooperatives which treat the farmers harshly and the commercial banks which push ordinary families to suicide do not have the people’s happiness on their mind.
The Reserve Bank of India website suggests that the bad loans soared since 2014. In the case of public sector banks alone, bad loans represent 12 per cent of total loans. Can this huge increase be explained by small loans? Not at all.
Going by the RBI documents, 80 per cent of the bad loans are in the account of 400 corporate giants. There are about a dozen companies that account for more than Rs 5,000 crore of bad loans. This includes Vijay Mallya, who has fled the country without repaying more than Rs 9,000 crore, and Neerav Modi, who has absconded with a liability of more than Rs 13,000 crore.
Had the central bank let out the details of all 12 big defaulters, we would have known who hangs out with who in this country.
There is more to the bad loans. The union government goes about trumpeting its achievements about development and laying foundation stone after foundation stone.
Let us analyze infrastructure development for instance. A project is designed as a private-public participation (PPP) model. Many projects are launched simultaneously. The private partner starts the work after borrowing from a public sector bank. The company later halts the work and squeezes itself out of the project citing the inaction from the government side. The bank loan is never repaid. Even if the bank tries to recover its money, the attempts will be stonewalled by the government and the RBI because the loan was taken for a PPP project.
Even the RBI governor has admitted that the banks cannot do anything to recover their dues.
The apex bank has absolved its responsibility by seeking the central government’s intervention to the problem area. The RBI has become a shadow of what it used to be before 2014. The bank is now governed by a “monetary policy committee” and bureaucrats nominated by politicians.
The RBI can no longer be distinguished from the central government. The autonomy is only in the name.
In effect, the central government gets to decide on when to move to recover a debt and how. The government has to recover at least a fraction of the bad loans. The rest of the capital requirements are met by ‘Indradhanush’ in the budget.
The government plans to divest up to 49 per cent of the public sector banks. The public sector banks’ equity value could be held aloft only if their capital levels reach a certain point.
Public sector banks in India acted as a bulwark against the recession of 2008. However, some quarters are hell-bent on tethering this crucial banking system in corporate stables.
Prime minister Narendra Modi has compared his predecessor Indira Gandhi to Hitler for imposing a brief financial emergency in the country. Why did she nationalised the banks? She changed the banks from elite institutions which catered to the needs of the upper class in the big cities. The nationalisation ensured that the common man, the marginalised sections and the dalits could also expect to borrow money from banks.
The nationalised banks made available low-interest loans to nominal, small-scale and mid-segment business in the 1980s. They earmarked between 38 per cent and 40 per cent of loans to the “priority” sections. That priority treatment led to the growth of the unorganised sector, which employed 94 per cent to 96 per cent of the people and contributed to 48 per cent of the Gross Domestic Product.
Dear prime minister, who has diluted the provisions of the special priority requirements?
Farmer suicides are increasing due to the debt trap. Farmers marches have been reported from all across the country.
About 17 lakh Indians live in the slums. About 28 crore are starving. India spends only 3.9 per cent of its GDP on the health sector, compared to 16 per cent in the United States and 5.3 per cent in China.
How do you propose to usher in the promised “Ache Din”?