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\nBy Shivaji Sarkar<\/strong><\/p>\n The nation is in a quandary. It wants to know who is telling the reality of bank non-performing assets (NPA) \u2014 Raghuram Rajan, who functioned as the RBI Governor from September 5, 2013 to September 4, 2016 or the NITI Ayog Vice Chairman Rajiv Kumar. NPAs Conundrum By Shivaji Sarkar The nation is in a quandary. It wants to know who is telling the reality of bank non-performing assets (NPA) \u2014 Raghuram Rajan, who functioned as the RBI Governor from September 5, 2013 to September 4, 2016 or the NITI Ayog Vice Chairman Rajiv Kumar. Rajan also held the position […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":{"0":"post-45675","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-features"},"_links":{"self":[{"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/posts\/45675","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/comments?post=45675"}],"version-history":[{"count":0,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/posts\/45675\/revisions"}],"wp:attachment":[{"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/media?parent=45675"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/categories?post=45675"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/arunachaltimes.in\/index.php\/wp-json\/wp\/v2\/tags?post=45675"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nRajan also held the position of Chief Economic Advisor during 2012-13. In a note to Parliament\u2019s Estimates Committee, headed by Dr Murali Manohar Joshi, Rajan said that banks\u2019 functioning during 2006-08 is responsible for the NPAs. Kumar pinned the blame squarely on Rajan\u2019s policies as the Central bank Governor, his deleveraging of credit and slowdown in economy due to rising NPAs.
\n\u201cWhen this (NDA) government came into office, this figure was about 4 lakh crore. It rose to 10.5 lakh crore by the middle of 2017,\u201d said Kumar and added that \u201cUnder Rajan, they had instituted new mechanisms to identify stressed assets and NPAs. This is why the banking sector stopped giving credit to the industry.\u201d It is sheer mud-slinging. The people need to know. What Rajan is saying is contrary to what the Reserve Bank documents reveal.
\nThere was problem in 2005-06 and the RBI found it was due to unbridled disbursement of retail loans. It hit 33 banks to the tune of Rs 19,062 crore, peanuts compared to the today\u2019s figures of Rs 10 lakh crore. In 2004-05, addition to gross NPAs of these banks \u2014 26 public sector banks, five private sector banks and two foreign banks was Rs 17,756 crore. Fresh generation of NPAs in wholesale loans in 2005-06 was not large, as many bad and potentially bad accounts had gone through debt restructuring and the industry has, in general, been doing well for the last couple of years.
\nOn March 31, 2006, addition to net NPAs for 2005-06 in absolute terms was Rs 10,248 crore for 31 banks, 16.18 per cent more than Rs 8,820 crore a year earlier. This was cited by the RBI as decisions taken by the banks themselves. The situation as per other reports started deteriorating post-2007-08 as the sub-prime crisis led to meltdown in the West. This was the time the UPA government started \u201cincentivising\u201d the industry and opened up bank coffers for giving large loans. Many industries did not possibly need such largesse but nobody wanted to miss on it.
\nToo many loans were reportedly given to well-connected promoters with a history of default. It was aided by an inefficient loan recovery system. The correction process with the new bankruptcy law and other stringent measures were introduced recently by the Modi government.
\nSo the Economic Survey of 2016-17 (ES) pointed out that 50 large companies were responsible for the NPAs. What was pointed out was that the biggest loan defaulters were power, steel, road, infrastructure and textiles. This has led to hit a record high of Rs 9.5 lakh crore at the end of June 2017. Is it a coincidence that the record rise coincided with the term of Rajan?
\nThe ES quoting Credit Suisse data says that the top 10 stressed corporate groups owe Rs 7.52 lakh crore in 2016. It was Rs 45,400 crore in 2006. Total non-performing assets are estimated at about Rs 12 lakh crore, part of which has been restructured \u2014 repayment officially delayed. At least 13 of the public sector banks, says ES, accounting for approximately 40 per cent of total loans are severely stressed.
\nRajan also writes that he had written to the Prime Minister about the crisis. Good, but he does not say which Prime Minister or when \u2014 before 2014 or later. But on February 7, 2018, Prime Minister Narendra Modi in his speech on motion of thanks alleged that the middle men looted the banks during the UPA regime. \u201cThe rising NPAs had dealt a deathly blow to the banks\u201d.
\nThe RBI working paper series 3 of February 7, 2014, when Rajan was Governor, mentions the period 2001-2006, a major part of Atal Behari Vajpayee\u2019s NDA government was marked by a sharp decline in the growth of gross NPAs and was marked by rapid product innovations and increased financial deepening.
\nThe paper further states that after a sustained improvement, NPA ratio witnessed a steep increase from 0.2 per cent as at end-March 2011 to 8.2 per cent by June 2012, indicating repayment defaults, post-2007-08 when recklessly loans were distributed. Was Rajan referring to this period when he indicated political interference?
\nThe RBI paper of November 8, 2010 marks 2008-09 as the crisis year. This was the period when lending increased but repayments slowed down. So NPAs, it says, reflected at 2.25 per cent. \u201cHowever, during 2009-10 the gross NPA ratio showed an increase to 2.39 per cent\u201d. This was the beginning of the crisis that has become too grave now.
\nSince 2012, when Rajan became Chief Economic Advisor to September 5, 2016, he was in a commanding situation. It is difficult to understand why he did not take steps to stem the NPAs or rising lending or suggest stringent measures.
\nIn 2007, Rajan was made Chairman of a 12-member committee in the Planning Commission. The committee submitted a report: \u201cHundred plus steps\u201d. Soon after this Prime Minister Manmohan Singh nominated him as his Economic Advisor in 2008. He could have done a favour if he had cautioned the government in 2007 itself. Instead, what he suggested was to privatise the public sector banks. This had raised a storm in both political and economic circles and the proposal was put off.
\nBut it raises another question \u2014 whether the process of making the banks sick was a part of a plan or not. The banking sector now is in a deep crisis. It is all people\u2019s deposits. Pessimism has gripped the sector. Deposits are coming down. Recapitalisation has a limit.
\nRajan was told by Dr Joshi\u2019s Estimates Committee to state the facts. What he has done appears to be a process of not stating the reality and lacks clarity too. The way forward that a person like him should have suggested is still not clear.
\nThe nation knows that the banking sector, custodian of people\u2019s money, is in deep crisis. It has to come out of the grim situation so that the world\u2019s engine of growth continues to purr and puff. Banks have to be nursed back to health. The diagnosis is known, the treatment has to be decided. One definite step is to have strong regulation \u2014 not political, less of rules, paper work and allow the banks to function business like without a dictat. Sooner the better! \u2013 INFA<\/p>\n","protected":false},"excerpt":{"rendered":"