Yet the Indian government, by
proposing FRDI Bill, is ready to
implement the “key attributes” of
financial reforms in toto, knowing
well that the Indian situation is
entirely different.
Totally Unwarranted
Several questions arise
regarding the rationale about
sweeping ‘reforms’ proposed by
the FRDI Bill in financial resolution
process. It is a well-known fact
that the banking sector is for a long
time plagued with the problem of
Non-Performing Assets (NPA). By
March 2017, the gross NPAs of
scheduled commercial banks
stood at around Rs.8 trillion. Up
from Rs.2.6 trillion in 2014. This
is despite generous bad-loan
write-offs worth Rs.4.58 trillion
over the last three financial years.
The financial stability Report of
2017 by RBI said that India’s gross
NPAs stand at 9.6 per cent. This
is the sum total of all stressed
assets by the lending institutions
including co-operative banks. It is
the second highest ratio of NPAs
in the world after Italy (16.48%).
The same report states that
the basic metals and cement
industries as most indebted
followed by construction,
infrastructure and automobiles. It
is a well-known phenomenon that
economic growth decreases with
rise in the bad loan ratios.
By 2014 when BJP came to
power at the Centre, the
manufacturing sector was in a
dismal state. Many infrastructure
projects, mainly highways, have
locked up huge amounts of bank
loans and were suspended.
Modi’s much placated ‘Make in
India’ scheme had not made any
conceivable progress and the
manufacturing sector continues to
February - 2018
suffer. The demonetisation and
Goods and Service tax have
further deteriorated the situation.
Thus Gross NPA ratio had risen
from 5.8 per cent in 2014 to 9.6
per cent in 2017.
Out of every Rs.100 deposited
in the bank, Rs.4 is parked with
the RBI as Cash Reserve Ratio
(CRR) and Rs.19.5 is invested in
the easily saleable assets such as
government bonds, securities or
gold as Statutory Liquidity Ratio
(SLR). In case of any contingency
nearly one fourth of the money can
be retrieved in a short time. The
bank is free to lend the remaining
Rs.76.5 to corporate and retail
borrowers. The interest earned on
such loans is used to compensate
the customers as interest payment,
expenses and remainder is the
bank’s profits. NPAs arise when
banks lend to clients who default
on their repayment.
Political and bureaucratic
corruption and manipulation is the
foremost cause for the NPAs.
Major chunk of NPAs was the
result of failure to repay on part of
30 odd families according to Arun
Jaitely, the finance minister of
NDA. In many cases, defaulters
can afford to pay, but don’t and this
was pointed out by former RBI
Governor Raguram Rajan who
said these defaulters throw lavish
parties and buy luxurious yachts
but don’t repay their loans. It is an
open secret that the reason for the
stoppage of 14 national highway
projects was the corruption and
political pressure. The Securitisation
and Reconstruction of Financial
Assets and Enforcement of
Security Interest Act (SARFAESI
Act) empowers the banks to
auction assets or properties that
were submitted as collateral while
sanctioning loans. Under this act,
64,519 properties were seized in
2015 while the value recovered
from them was very small. There
are hardly any cases wherein the
properties of these big wanton
defaulters have been taken over
and money recovered through a
quick sale of the same. In the case
of poor, who had genuine reason
for default, particularly in rural
areas, their cattle and utensils are
taken over ruthlessly.
There are other Acts and
structures that enable banks to
deal with NPAs. The Insolvency
and Bankruptcy Board of India
(IBBI) which implements Insolvency
and Bankruptcy Code, Recovery
of Debts due to Banks and
Financial Institutions (RDDBFI)
and Debt Recovery Tribunals were
instituted. The Deposit Insurance
and Credit Guarantee Corporation
(DICGC) was established through
an Act passed by the Parliament
in 1961.If the political corruption
and interference were avoided in
the banking operations, the
problems of NPAs could be tackled
easily by the banks themselves.
Indian financial sector is
dominated by the public sector
banks, insurance and other
financial institutions. When
compared with those in the
imperialist countries, the Indian
financial entities have not reached
to the level of so-called ‘too-big-
to-fail’ as proposed by the G-20.
Only SBI appeared at 55 th place
in the largest global banks list.
None of the Indian financial entities
appear in the list of “Global
Systemically Important Financial
Institutions” identified by the G-20.
Secondly, the Indian public
sector financial institutions
insulated Indian financial sector
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