Long live non- performing assets

Long live non- performing assets


For last couple of years the politicians and media have educated all countrymen including school going children on who is Vijay Mallya and his guilt of bad management in not only ruining Kingfisher Airlines but also making loans of Rs 9000 crores or so granted to him and his companies (by our beloved nationalised banks) BAD or non performing assets (NPAs).

It appears that our whole system of trials, be it by politicians, media (including evening buffet of debates in all leading news channels) or by the judiciaries are running from pillar to post including diplomacy with foreign countries to nab Mallya for this financial crime. Of course financial defaulters should be chased like that since the loans of public financial institutions are nothing but good money of tax payers.

But what is happening to the whopping NPAs running into lakhs of crores by our banking system? Who or which groups of companies are the defaulters? Can we have a publicised list of all such companies, groups that have gobbled up such big amounts? Periodically we come across small reports in media that the steel industry itself owes the banks Rs 3,00,000 crores (yes, Rupees three lakhs crores) or so and is still talking about doubling the capacity in next few years.

If there is any one single industry that has eaten away maximum public money, it is the steel industry. And that too after getting protections disguised as subsidies in various forms like safeguard duties, import protection tariff, supply of raw materials from government owned companies at much lower price than international market, preferential buying from such companies in government projects at a price higher by 10- 15 per cent to its international competitors, etc. All of which are paid for directly or indirectly by the common man or the aam aadmi taxpayers. Why should Indian buyers pay higher than landed import price for such products due to the inefficiencies of these companies?

There are some super promoters in the steel and other industries who announce grand projects with plans of adding capacities particularly when the business cycles are in peak and after lobbying with the ministries. Sometimes these super promoters start a business where they have no competence or credentials (and I am not talking of startups). But all these people manage to get blessings of loans from the public sector banks and government owned financial institutions irrespective of their loan repayment track records.

Sometimes additional loans are sanctioned to show repayment of interest or loan installments with the idea of showing that the accounts are not “sticky” or rather they are all “performing.”  When these methods are no longer possible to hide the actual colour of these accounts, they are termed ‘non-performing’ and as per RBI guidelines, provisioning needs to be done on them.

Why are no media trials done for such super promoters by mega businessmen such as Mallya? The cost of all these NPAs is borne by taxpayers. One can question how? Banks are expensing out such accounts in their income statement or profit & loss account. How does it affect the common man? It affects in the following ways:

l Cost of bad loans are borne by good loans in the form of higher interest;

l Capacity of banks for interest payment on deposits reduce thus lowering interests to depositors including senior citizens;

l Due to erosion in net worth the share prices will come down thereby impacting market capitalisation

The funding to banks for such bad loans are done by the government in various ways. For instance, by injecting equity, buying long term bonds, etc. And the government money comes from where? From more and more taxes on law abiding citizens (tax evaders have no stake though).

Recently the government announced a package of over Rs two lakh crores to fund our banks that are riddled with NPAs. Now the question is where is the accountability? How many bank officials appraising the loans (which turned out to be bad or NPAs) have lost jobs or promotions?

From time to time policies are announced to fix sectoral limits of bank loans as a routine matter of playing to the gallery by ministers in the name of aiding the plight of down trodden and have not’s in our country. And this is going on since bank nationalisation which was about 50 years back.

How has it helped the borrowers in improving their economic condition? Actually most of those loan beneficiaries are well aware that neither interest nor those loan installments need to be paid. As periodically loan or interest waivers will be announced and the taxpayers would bear the brunt directly through Kalyan Cess and some other  tariff or indirectly.

We must remember that NPAs of banks are not the only NPAs of our citizen’s assets. There are great government companies like Air India, Indian Airlines, Steel Authority of India Limited (SAIL), among others that are directly funded by the government (of course from taxpayers money) by way of equity funding or long term loans. Such cumulative funding also would amount to lakhs of crores (leaving aside the financing of Indian Railways).

A question arises as to all these investments by various banks in companies which are doing commercial business are represented by what assets – both quantitatively and qualitatively? Unfortunately both the central and state governments only submits the proposals in the form of annual budget as to earnings, expenditure and funding. No government draws a balance sheet to show the state of financial affairs the country or the states are in.

The balance sheet has to not only show all the assets, investments and liabilities but also to self balance on both the sides. If we talk about financial transparency why are no income and expenditure account or balance sheet by the government departments in public domain in the same way as that are required to be compiled and submitted under various statutes?

So long the as the questions raised herein remain unanswered, long live NPAs.

*The author is a chartered and cost accountant, ex MD of erstwhile Sesa Goa and retired as executive director (iron ore business) of erstwhile Sesa Sterlite Ltd (now Vedanta Limited)