India’s 29 state-owned banks have written off a total of Rs 1.14 lakh crore between 2012-13 and 2014-15. A newspaper report on Monday about these write-offs only underlines the gravity of India’s problem with bad loans and the consequent constriction of credit flow.
To put things in perspective, such an amount would be enough to build more than 11,000 km of national expressways at an average cost of Rs 10 crore per km entirely funded by the government. Likewise, with Rs 1.14 lakh crore, the government could have widened the scope of the rural job scheme by nearly four times. In recent days, mounting bad loans and high default rates by large companies have drawn criticism from experts and regulators, including Reserve Bank of India (RBI) governor Raghuram Rajan, who minced no words against those who “celebrate birthday bashes” despite owing a lot money.
While one needs to be sensitive to those who default on loans because of genuine, but unforeseen, business reasons, it may be time to take a tough stance on loan defaulters who can pay, but won’t. These are wilful defaulters; the rules should be changed to allow banks to press criminal charges against such black sheep.
The banking sector has been beset with loans that have turned bad due to slow economic growth and delays in project implementation. For 39 listed banks, gross non-performing assets (NPAs) rose nearly 27% to Rs 3.4 lakh crore for the quarter ended September 2015 from Rs 2.68 lakh crore in the same quarter in 2014. Of the September 2015 gross NPA figure, more than one-sixth are wilful.
There is also an urgent need to come out with a mechanism that would ensure time-bound closure of legal cases pertaining to NPAs, a move that would speed up the recovery process for banks. At present, such cases can drag on in various courts for several years, delaying the recovery process for banks. Strategic debt restructuring, which helps banks reduce NPAs by taking over loss-making assets of borrowers, has not worked because of a shortage of buyers of stressed assets.