Mr Sarma, former union secretary has asked every case of corporate debt restructuring-CDR to be investigated by CVC or CBI as he feels restructuring of bad loans are mostly the outcome of collusion among politicians, PSU banks and industrial houses
EAS Sarma, former secretary to the Government of India (GoI) has asked the finance services secretary to investigate the increasing non-performing assets (NPAs) in public sector banks (PSBs) and usage of corporate debt restructuring (CDR) by corporates.
Mr Sarma, in a letter to Rajiv Takru, secretary for financial services has said, "It is unfortunate that public funds should thus be misappropriated for private gains. Every case of CDR should be got investigated by Central Vigilance Commission (CVC), Central Bureau of Investigation (CBI) as CDR is mostly the outcome of collusion among politicians, PSU banks and industrial houses."
Referring to a story published by Moneylife on the lavish spending by Pramod Mittal, former chief of Ispat Industries and a bank defaulter, on his daughter’s wedding, Mr Sarma said, "I demand that the Ministry of Finance refers this case to CVC or CBI for an investigation to ascertain the circumstances that led to the CDR. Who are the politicians who exerted pressure on the PSU banks? Were there quid pro quos in this?"
Last month too, the former secretary has sent letters to Mr Takru. He had said, "From the statements coming from your office and RBI, I find that the banking system's NPAs have shot up to Rs1.93 lakh crore in 2013 from Rs50,513 crore in 2007, a four-fold increase within a short time span of five-six years! More than 80% of these NPAs are with the PSU banks. The banks have approved CDR packages for 415 companies covering a staggering amount of Rs2.50 lakh crore as on 30 June 2013. Many CDR packages also involved huge write-offs!"
"I suspect that the NPAs formally disclosed by the banks represent only the tip of the iceberg and a banking bubble is about to burst. The government should be circumspect in sinking public funds in the banks in the name of ‘re-capitalisation’, without addressing the root causes of the NPA disease. What distresses me most is that NPAs are allowed to erode the value of not only the deposits of small investors in PSU banks but also the premium remittances to public insurance companies by small life insurance policy holders," Mr Sarma said.
According to Mr Sarma, the excuse often cited by the banks is that the economy had slowed down, leading to lesser incomes of the corporates and their eroded ability to repay loans on schedule. "However," he said, "a closer investigation will reveal that this is only a lame excuse. Most of the defaults are either an outcome of dubious project loans given recklessly or sheer imprudence on the part of the banks. The project appraisal systems in PSU banks are fragile and deficient. Many loans were given under political pressure."
Sharing one instance of a syndicated loan package of Rs4,500 crore given by a consortium of PSU financial institutions for a power project, the former secretary, said, "The entire amount was credited to the account of an overseas company and ‘round-tripped’ later through FIPB as FDI! I have reported this to the CVC for instituting an investigation. I am sure there are many other similar cases. This kind of misappropriation of public money would not have taken place without the knowledge of the bank officials concerned."
Mr Sarma said, the government should revisit the concept of CDR as it has become a euphemism for regularising fraud in banking. Every case of CDR deserves an independent investigation. No future CDRs should be permitted without an independent exercise of due diligence and without vigilance vetting, he added.
"It is ironic that the government has consciously permitted CDR for defaulting corporate bodies but not considered debt restructuring for more deserving farmers and artisans who’s NPAs constitute only a small fraction of the total NPA amounts. I was distressed to find a farmer in Khammam district of AP committing suicide as the bank manager said he had no scheme to reschedule repayment of a Rs7,000 loan taken by the farmer. In the same breath, the banks had no compunction to reschedule the Rs7,000 crore loan defaulted by a mis-managed King Fisher Airline company!" Mr Sarma said in his letter to the financial services secretary.
Iran is the largest producer of natural gas and efforts are to be made to increase trade in this area
A giant step towards peace and tranquility was taken when six world powers signed a historic nuclear deal with Iran last month. This interim pact between Iran and US, France, Germany, Britain, China and Russia has been called a "historic agreement" by most, while Sunni Muslim countries like Saudi Arabia, Kuwait and Qatar showed their displeasure.
This conditional agreement ensures that there will be no new nuclear-related sanctions for six months, if Iran maintains its commitment to stop enriching uranium beyond 5%; it will stop developing centrifuges; it will dilute its stockpile of uranium enriched to near 20%, besides giving greater access to inspectors for daily inspection at Natanz and Fordo nuclear sites. Iran has also agreed not to develop the heavy water reactor in Arak.
It remains to be seen how both sides will faithfully follow this historic agreement in true spirit and practice.
In so far as India is concerned, this agreement can bring about a significant change in its relations with Iran. From being the 2nd largest supplier of oil (18.1 million tonnes) in 2011-12, it has now become the 6th, and supplies have reduced to 13.1 million tonnes (2012-13) due to the erstwhile sanctions.
However, this agreement does not permit Iran to be able to ship more than one million barrels per day (mbpd), which is 60% below its original supplies of 2.5 mbpd.
Should Iran keep up its part of the agreement in letter and spirits, chances are that six months from now, there is hope for a greater relaxation as Iranian economy depends upon great oil and gas exports.
In a recent visit of the Iranian Trade Delegation to India, there were encouraging signs that with the nuke-deal in place, the trade between the two countries can now look forward to some favourable development. For one thing, Iran is the largest producer of natural gas and efforts are to be made to increase trade in this area, which can take it to as high as $20 billion considering the opportunities for export of Indian agricultural food items like rice, soya, tea; pharmaceuticals, aluminia and minerals, iron and steel and several types of chemicals.
Apart from trade in this manner, there is the issue of Iran-Pakistan-India gas pipeline that has been collecting dust, though, Iran has taken the initiative to complete its portion of 900 kms (out of 1,100 kms) of pipeline on its territory at a cost of $700 million. Pakistan has not been able to complete its part of the bargain, and has been seeking Iran to help finance the project, which has already offered $500 million but Islamabad has been claiming that it would still need a total of $2 billion to complete. The agreement also stipulates that Pakistan should be able to complete the required pipe line on the Pakistani side by December 2014, failing which they have to pay a stiff penalty in millions of dollars. If and when completed, it would enable Pakistan to get gas at $13/mmBtu. The work has not been satisfactorily done on the Pakistani side.
The second pipeline in the region, from Turkmenistan for supply of gas via both Afghanistan and Pakistan, with a tacit approval of USA, has also not made significant progress, in view of the political situation in Afghanistan and the prospect of withdrawal of US troops from that country.
In order not to have too many obstacles in the form of depending upon
Pakistan to wholeheartedly support such pipeline deals, it would be in India's interest to consider a safer alternative to bring the gas through the sea route in form of LNG, if it is workable.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)