A group of “large-value” corporate accounts has pushed up non-performing assets (NPAs) and associated financial frauds in the country since 2008, CBI chief Anil Sinha said this week, at a time when dozens of Indian banks are swamped with bad loans.
The crisis runs deep, Sinha said at a financial conference in Mumbai on Wednesday, weeks after the Supreme Court asked the Reserve Bank of India (RBI) to provide details of companies that have each defaulted on loans of more than Rs500 crore.
However, the Central Bureau of Investigation (CBI) director did not give details of the accounts that are being examined by the agency.
India’s banking sector, dominated by about two-dozen state-run lenders, has been bruised by its highest bad-loan ratio in years as lagging economic growth hit companies’ abilities to service debt.
In August 2013, then CBI director Ranjit Sinha told a gathering of government officials that the “bulk of the NPAs is from the top 30 accounts, which is learnt to be running into thousands of crores.”
A loan is recognised as a non-performing asset when the repayment is delayed beyond 90 days. This forces the bank to make provisions by setting aside funds, further restricting its lending capacity.
At the Mumbai meet, Anil Sinha said defaulters are not getting deterred because of “weak and diffused” accountability mechanisms in banks and financial institutions.
“Added to this is the unduly slow and long process by which such loans and advances are red-flagged, declared NPAs, then wilful defaulters and finally fraudulent,” he said. It “allows large borrowers ample time to walk with the funds…to tax havens.”
According to government figures, gross NPAs of 39 listed banks stood at Rs 4.43 lakh crore in December 2015, nearly ten times the 2009 level.
“The CBI has recently registered a case of cheating and fraud against Kingfisher and its erstwhile management involving allegations of defrauding banks to the tune of Rs 7,000 crore,” Sinha said.
“This case was registered in July 2015, but the loans or advances were taken during 2004-2012… However, despite our repeated requests, the banks did not file a complaint with the CBI. We had to register the case on our own initiative.”
RBI governor Raghuram Rajan has set banks a March 2017 deadline to clean up their balance sheets and treat some troubled loan accounts as bad and make provisions for them by the end of this March.
Sinha also underscored the need for pre-emptive action to thwart deposit scams that thrive in India’s vast informal financial sector.
“The second case relates to PACL – Pearls Agrotech Corporation Ltd—which has reportedly collected over Rs 51,000 crore of illegal deposits from nearly 5.5 crore investors,” he said, referring to the scandal that illustrated the risks faced by millions of low-income Indians who live outside the banking system.
“It needed the Supreme Court to step in to order investigations… Should not the regulator have suo moto (on its own) stepped in?”