Citizens' Issues
Rajat Gupta released from prison
Gupta was released on Friday, four years after he lost his insider trading trial and suffered multiple legal setbacks to overturn his conviction
 
Goldman Sachs' former Director Rajat Gupta has been released after completing his two-year prison term, weeks after a US court agreed to re-hear his appeal to throw out his 2012 insider-trading conviction.
 
According to his record at the Federal Bureau of Prisons, India born Gupta was released on 11th March. Gupta’s prison term was to end on 13th March, but since the date fell on a Sunday, he was released on Friday, four years after he lost his insider trading trial and suffered multiple legal setbacks to overturn his conviction.
 
The Harvard-educated was convicted in his 2012 trial of passing confidential boardroom information to his one-time friend and business associate Raj Rajaratnam. 

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Wilful Defaulters are a result of Wilful Blindness
How many organisations turned a blind eye to Vijay Mallya's bad loans
 
It is no surprise that the self-crowned King of Good Times, Vijay Mallya, still does not get it. “Why am I being made the poster boy for bad loans of banks?” he asks peevishly. Well, because you were immature enough to flaunt your enormous wealth in the faces of India’s poor and your own unpaid employees of Kingfisher Airlines (KA), without any concern for their distress. While you tweeted about Formula 1 and the IPL, you had no word of sympathy for their struggles—not even when the wife of one employee committed suicide! And while you strut around the world and host obscene birthday parties, KA employees, who earned a relative pittance, were listed as ‘defaulters’ by credit information companies for failing to pay their EMIs (equated monthly instalments) on their precious loans. Many will remain defaulters and be forced to borrow from expensive private sources to keep their homes. You also allowed KA to default on crediting provident fund and tax deducted at source (TDS) to the government. This offence alone should have led to your arrest a couple of years ago, if our otherwise draconian investigation agencies were not specifically soft on you. 
 
It is, indeed, true that Vijay Mallya’s bad loans of over Rs7,000 crore are just one big blob in the enormous mass of bad loans—estimated at over Rs8 lakh crore—mostly extended to India’s richest and most privileged people. On 9th March, on discovering that Mr Mallya had fled the country, the Supreme Court of India (SC) issued him a notice seeking a reply in two weeks. His response will probably dictate what happens next; but his skilful manipulation of judicial processes may have finally come to an end. Let us not forget that Mr Mallya was in a big financial mess even in 1990-91; he dug himself out of that hole, thanks to his vast realty assets (including those from new acquisitions) while his liquor business boomed post-liberalisation. 
 
After that experience, Mr Mallya got himself power and near-immunity through a Rajya Sabha seat. He also learnt to manipulate the legal system to his benefit by filing cases in courts and tribunals across India. In May 2012, tax expert Vinod Kothari wrote in Moneylife about a case where commission was paid to one of Mr Mallya’s former wives claiming that she helped the business as a socialite; it was disallowed by the Chandigarh tax tribunal. In another case, money was siphoned from Punjab Breweries, through payment to a clearing and forwarding company which passed on the money as an interest-free personal loan to Vijay Mallya and his wife Samira Mallya (ITA 217 of 2002). 
 
He also won a legal battle to pay himself a guarantee fee of over Rs50 crore for giving a personal guarantee for the loans of Kingfisher Airlines (UB Holdings provided another guarantee of over Rs1,600 crore). Why was this guarantee not ruthlessly invoked? Why has the Securities and Exchange Board of India (SEBI) failed to question KA’s board of directors for pathetic oversight and governance? Is it because it comprised a Union secretary, an ex-chief of a public sector company and SEBI’s own former chairman? 
 
A simple look at Mr Mallya’s bad loan composition screams of crony capitalism. Every large lender is a public sector bank (PSB) starting with State Bank of India (Rs1,600 crore), which is the biggest, IDBI Bank, which controversially lent him over Rs900 crore even after Kingfisher had shut down, and 10 others. There are only two private banks with relatively smaller exposure. 
 
Apart from banks and tax authorities, even the Election Commission of India failed to act on repeated letters from former Union secretary EAS Sarma about Mr Mallya’s false election affidavit. Mr Sarma says that Mr Mallya did not disclose his offshore accounts and vast properties abroad which are routinely written about in the media. This, too, is an offence punishable under the Indian Penal Code and would have ensured that Mr Mallya did not exploit his legislative privilege for access and arm-twisting lenders. 
 
Now that the matter is before a Supreme Court bench, which seems genuinely disturbed at the loot of public funds, Mr Mallya’s manipulations will, hopefully, end and the SC will also be tough on the bankers who are projecting themselves as innocent victims. Making an example of Mr Mallya, and the bankers who bailed him out, will hopefully make other wilful defaulters see the writing on the wall and trigger real change. 

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COMMENTS

Balaji

9 months ago

Good article, though brief. Is it fair to say, all scams (including Harshad M.) are Banking scams? Where is RBI and SEBI?

Thanks.

S SRINIVASA RAJAN

9 months ago

One of the largest defaulters to Indian Banks is Zoom Developers where banks do not seem to hold any security at all. Yesterday I was viewing a TV program in NDTV where a former CMD of PNB (with highest exposure to the Group) who later on became the Deputy Governor of RBI confessed that his officials had flown abroad at the expense of the borrower and enjoyed the client hospitality but did not inspect any of the projects which they were supposed to be funding. A courageous confession but the question is why no action was taken against these officials. Also the TV report highlighted cases where there were 17 companies registered under a single address (a small room) and PNB officials very liberally granted loans to these companies with apparently no security. PSU banks have been systematically raped by politicians, bureaucrats in the Finance Ministry and bank officials and very few people have ever been convicted for a bank fraud in India. Perhaps it is high time for the Government to institute Fast Track Courts to deal with bank frauds.

SuchindranathAiyerS

9 months ago

The Wilful Blindness that caused an ice berg of which one tip is Kingfisher. But, is it willful blindness or deliberate expropriation of public wealth by those in power? India's notorious Kleptocracy:

At Rs 4 lakh crore, bad loans exceed market value of PSU banks.
It started with the Nagarwala case. During the Emergency,Sanjay Gandhi and Yashpal Kapoor used to drive away truck loads of damaged currency marked for destruction by RBI at Nagpur for recycling among their foot soldiers (The Indira Brigade of thugs and worse. "Secular Moslems"?). Comrade Pranab Da Mukherjee Ji was reputed to demand small velvet bags of diamonds for appointing Chairmen of Public Sector Banks. Corruption and crime were institutionalized by Indira Gandhi after she lost the Keshavananada Bharathi Case. The Indira "high command" was created to collect and maintain files of criminal wrong doing of judges, bureaucrats, military officers, police and others who would then be jockeyed into key positions and preferred promotions as they could be controlled and manipulated to implement PANGOLIN policy. Being a criminal was a sine qua non of Government Service under the PANGOLINs. I was there as an SBI Manager at Bellary when Janardhan Poojari's thugs kidnapped and raped the daughter of a Canara Bank Manager because he refused to entertain non Bankable proposals recommended by Khangressis.

SuchindranathAiyerS

9 months ago

While this is a typical legerdemain of Indian Crony capitalism, one must not forget the Ice Berg that sank the Titanic. Kingfisher was addressing a specific market segment. The Business Traveller who was sick of the insouciance of India's public sector carrier and different from the other private Indian operators who were addressing the low cost market. Kingfisher was doing quite well until it hit the turbulence created by Sonia Gandhi's Sharad Pawar's Praful Patel (Yes, the same member of Manmohan's "Coalition Dharma" aka "parivar-that-loots-together-to-stay-together who bought Honest Antony's wife's paintings for Air India).
Patel bought an enormous number of Boeing aircraft that nobody wanted and Air India's plans and estimates did not warrant for Air India that drowned the Indian Air Passenger market with excess capacity sinking Kingfisher. Air India would have drowned too. But, because it is a Public Sector, it has been kept flying at the cost of India's growing deficit, inflation and other tax payments. Praful Patel then went on to sell Air India's newly acquired Aircraft at far below cost to Etihaad Airlines. He also sold several of Air India's prized and high potential routes and landing rights. The people of India have and are paying far more for the Air India black hole that Sonia's Pawar's Patel made than The King Fisher debt which is merely a part of the whole.
It would be good when superficial Journalists, Bankers, Central Bankers and Politicians refer to Vijay Mallya's Kingfisher, they also refer to the Senior and bigger of the Siamese Twins that has drained the Public coffers. Praful Patel's Air India. (I wonder whether Pawar's Baramati and Mallya had a spat over booze leading to the enormous bill presented to Indian Citizens by Praful Patel ?). As a former Banker, I find the idea of accepting a "Brand" as collateral astounding and I doubt whether even the Crony Capitalist Junk Bond Bankers of the US and UK would be so daring. At whose behest did SBI do so? Chidambaram's?

REPLY

Sucheta Dalal

In Reply to SuchindranathAiyerS 9 months ago

As a regular reader of Moneylife, you have surely seen articles on numerous willful defaulters -- including AIR INDIA and Praful PATEL. If you have forgotten pick a name and google the Moneylife website. Request you to follow this practice before talking about "superficial journalists".
Meanwhile, even as a reader, you are a citizen of India. How about you sharing your efforts to stop corrurption in India?
thank you
Sucheta

shanti Patel

9 months ago

Our investing agencies and banks are working like KOOBHKARNA-sleeping until the last stage.
After the HORSE left the country, all the agencies started investigation-C.B.I.,ED,Economic Offence Wing and SFIO. Where were they for so long?
Bank officials are equally responsible for their inaction till Mr.Mallya left the country.
All government officers including bank officers must be made accountable in such cases.
In cases of remaining big defaulters, the strict action is required and they should be prevented from leaving country.

Shanti Patel
Hon.Secretry-Bombay Shareholders Association

deepak narang

9 months ago

The regulator who stated that licence of KFA will be cancelled for violations of rules was sacked and Banker who took cudgles against him is suffering because of unconstitutional act of those in power .Why not fix accountability of those who punished honest officers

Mahesh S Bhatt

9 months ago

These many Law Ministers couldnot see this coming.

So wake up Correct Clean the mess.

Mahesh

Mahesh S Bhatt

9 months ago

KING OF GOOD TIMES
IS TASTE N TOAST OF INDIA

WELCOME TO GREAT DEMOCARZY WHERE CEC DOENOT REFORM
LAW MINISTERS TILL DATE HAVE GREAT LAWS OF NO PISSING AND SHITTING.

BUT NOW SHIT IS IN RAJYA SABHA HOW HIGH NEEDS TO GO SEE THE LIST BELOW

B. R. Ambedkarg
Jawaharlal Nehru
Charu Chandra BiswaS
Ashoke Kumar Sen
Lal Bahadur Shastri
Gopal Swarup Pathak
Shanti Bhushan
Hans Raj Khanna
P. Shiv Shankar
Jagannath Kaushal
Ashoke Kumar Sen
P. Shiv Shankar
Dinesh Goswami
P. Singh
Subramanian Swamy
Kotla Vijaya Bhaskara Reddy
Ram Jethmalani
Ramakant Khalap
Thambidurai
Ram Jethmalani
Arun Jaitley
Jana Krishnamurthy
H. R. Bhardwaj
Veerappa Moily
Salman Khurshid
Ashwani Kumar
Kapil Sibal
Ravi Shankar Prasad
D. V. Sadananda Gowda ALL MESSED UP

Merchant M S

9 months ago

When an ordinary citizen fails to pay his monthly instalments his car or house is auctioned. Why big industrialist of Lanco Group, Jaypee Group, GMR Group, Videocon Group, GVK Group, Essar Group, Adani Group, Reliance Group, JSW Group and Vedanta Group has not been asked to repay the loans. Why their properties are not auctioned. The PSB balance sheet will write off the bad loans and may be the FM shall make a provision in the next budget to help the PSB.

Suketu Shah

9 months ago

Mallya default is such a high profile matter esp when NPA defaults is on such top priority of Modi Govt(atleast as per press reports) that if they cannot make him pay up,no one else wl pay and public sector banks(already in deep trouble) wl stagnate at the very best,if not worsen.

Next few weeks shd be interesting what happens on this matter by NaMo govt.

Ajay Kumar De

9 months ago

I have personal knowledge with vulnerable documents that I handed over also to the second last FM in UPA regime showing desperate involvement of very many senior officials of RBI itself - not in Kolkata Region but also in Central Office up to the rank of their ED in the Himalayan multi crore scam in a cooperative bank in heart o city Howrah [WB. This is enough motivation for other institutions to show apathy and feign blindness. I repeat - not blindness but considerations are the reason. Rajan Sahab also has enough knowledge how his men from level of a babu, manager to the highest level are involved in the scam of Ramkrishnapur Cooperative Bank in Howrah

manoharlalsharma

9 months ago

Wilful Defaulters are a result of Wilful Blindness u may be failed to understand exactly if it termed GOODWILL sacrificed to POLITICAL funding and done with full knowledge as police is knowingly shielding crimes done by politicians.

TIHARwale

9 months ago

Vijay Mallya need to be made resident of TIHAR for default of KFA on crediting provident fund and tax deducted at source (TDS) to the government. What is preventing Feku56 from getting executives arrested immediately who are involved in approving after KFA had stopped flying. once this is one these executives will come out with more chacters involvedin this and other dbious deals but this is unlikely to happen recall Saradha Chit Fund scam where top TMC leaders are involved but Feku56 and Arun going slow and using it milk Mamata the patron saint and so it is no surprise if Vijaya Mallya was helped by rulers of the day to fly out of India

D S Ranga Rao

9 months ago

Vijay Mallya or Nirmal Singh Bhangoo of the PACL loot, the story is the same. Lack of governance. Neither of the loots did not happen overnight. They took their own time and over the successive governments and establishments. And mind you, they did not happen by stealth or secretly, but openly, publicly and nakedly. Also, the loot and plunder took place at many places and many times with the express consent and connivance of the looted. Most unfortunately, the government seems to be nowhere in the sight either to recover the loot or to fix up the responsibility and punish the guilty or to prevent recurrence of such an open loot in future.

PPM

9 months ago

India can recover 20% of the bank NPA from the bank officials as they got minimum 20% of the loan as commission for approving the large loans without proper collateral.

- Can the bank officials declare their assets and sources of their income to the public?

In the case of Vijay Mallya, the banks were waiting for him to leave the country to file the case to stop him leaving India. All the top officials of the bank are to take responsibility of this lapse.

Bank Consolidation: An Idea That Is Long Overdue
It is a 25-year old idea, but anger about the loot of public funds and fear of adverse court orders may finally lead to mergers among public sector banks
 
The more things change, the more they remain the same. When it comes to legal and economic reforms or infrastructure projects, we discuss issues for decades, without any urgency to implement even the most obvious reforms. Consolidation of public sector banks is one such issue. The finance ministry closed its second Gyan Sangam by pulling this rabbit out of the hat. Finance minister Arun Jaitley announced, on 5th March, that an expert group would be set up to look into the issue of consolidation.
 
We learn that bank consolidation was discussed, and buried, at the earlier Gyan Sangam because chiefs of public sector banks (PSBs) were not in favour of such mergers. This seems strange, because nearly a dozen banks were headless those days and it was probably the best time to undertake reconstruction and consolidation before the separation of the posts of chairman and managing director, which was done subsequently. The more likely scenario is that the government was so focused on getting PSBs to focus on opening millions of jan dhan accounts that everything else was relegated to the background. 
 
Why did this Gyan Sangam adopt a different tone? There are multiple reasons. One, several PSBs have declared embarrassing losses, or a significant erosion in profits; two, there is public outrage over bad loans burgeoning to Rs8 lakh crore; three, a massive illegal forex transfer scam engulfing several top banks has been unearthed (Rs6,100 crore in Bank of Baroda alone, but no estimate of the total size of this scam involving over a dozen banks); and four, the judiciary has expressed repeated displeasure at national resources being used to paper-over non-performing assets (NPAs). 
 
Bankers were told that infusion of capital by the exchequer would be linked to their willingness to merge and consolidate, effectively leaving them with no choice. In this situation, industry would have lobbied to scuttle the plan; but, with public anger against bad loans at such a high, it will be politically disastrous for the government to give in to such pressure. 
 
But why set up an expert group, again, to discuss bank consolidation? Why not dust down the second Narasimhan committee report (Nara-II), the PJ Nayak committee report and check out what worked, what failed and what is still needed and feasible? 
 
One newspaper reports that the Bank Board Bureau, set up under Vinod Rai, former Comptroller & Auditor General, may be asked to look into the issue of bank consolidation, in addition to selection of the board of directors of PSBs. This is beyond the board’s current mandate; but given Mr Rai’s background and record, he is capable of delivering a workable plan in a very short time without being influenced by corporate lobbies. 
 
Here is a quick update on Nara-II which was set up in 1997 for banking reforms. 
  1. The committee frowned on recapitalisation of banks. Yet, in the past two decades, recapitalisation of PSBs by the exchequer is almost an annual feature with no attempt to increase accountability and responsibility of top management for bad loans. 
  2. It recommended that the 27 PSBs should be reconstituted into three-tiers. Strong Indian banks should be merged to create three or four large banks, capable of supporting international trade; there should be a second level of 8-10 large national banks and a larger number of smaller banks. After the global financial crisis, the world has become wary about very large multinational banks, so the second tier, of 8-10 national banks, has become more attractive. These may not necessarily be PSBs anymore. While PSBs have been piling on bad loans while resisting consolidation, the ‘new’ private banks licensed in the early 1990s, have grown rapidly through mergers & acquisitions. HDFC Bank, ICICI Bank and, more recently, Kotak Mahindra Bank (licensed in 2002) grew bigger and stronger by acquiring other private banks (Times Bank, Centurion Bank, Bank of Punjab, ING Vysya, etc) and, in the process, also covered up embarrassing licensing decisions of RBI.
  3. Nara-II wanted the government to move away from the pre-1998 practice of forcibly merging weak banks with strong ones as a bailout measure. This, too, was ignored. Bailout mergers continued. Global Trust Bank (GTB), which was deeply embroiled in the Ketan Parekh scam, was force-merged with Oriental Bank of Commerce and the promoters of GTB were allowed to go scot-free; United Western Bank was similarly merged with IDBI Bank, which is itself under investigation today for dubious lending to Vijay Mallya’s Kingfisher Airlines.
  4. Nara-II had identified ‘priority’ sector lending as the main reason for bad loans. The All India Bank Employees Union (AIBEA) has recently opposed privatisation of IDBI Bank with the claim that most NPAs are due to loans to private-sector companies. Clearly, behest-lending and crony capitalism only mushroomed in the semi-liberalised environment following half-hearted financial reforms. 
  5. Nara-II recommended the creation of asset reconstruction companies to take over bad debts of banks and allow them to clean up their balance sheets from time to time. This was promptly implemented, but is largely ineffectual, like the SARFAESI Act 2002 was, in handling bad loans. So the government has now cobbled together a flawed Bankruptcy Law and is holding it up as the answer to our bad loan problem. Hopefully, it will not be cleared by parliament in this form.
  6. Nara-II had also deliberated on which banks are best suited for a merger, based on their corporate culture and geographical spread. This part of the report was subsequently dropped from the official version. And the idea of bank mergers was itself abandoned by policy-makers in the face of opposition by aggressive bank unions.
 
Why has the government always given in to banks’ reluctance to merge or consolidate? The answer is crony capitalism. It is no secret that Indian industrialists lobby and fix bank chairmanships as well as post-retirement sinecures, including board directorships, with lucrative perks and sitting fees. The quid pro quo is for their repeated support for corporate debt restructuring (CDR), issue of fresh loans, ever-greening of non-performing accounts and turning a blind eye to siphoning of funds or their diversion to other projects.
 
Banks and industry have also colluded to ensure that there is no formal process to share data on bad loans and borrowings by industry groups, despite all the hand-wringing about this issue for 25 years. RBI has also been complicit in not pushing for it; after all, credit information companies to monitor individual borrowing have been operational for over a decade. This time, however, things are different. The finance ministry estimates that PSBs will need capital infusion to the tune of Rs1.8 lakh crore for the four years ending March 2019 while the government plans to infuse only Rs70,000 crore in these four years. The recent Economic Survey has also offered a solution in the form of four ‘Rs’: recognition, recapitalisation, resolution, and reform. The government needs to think differently now and show some quick results.
 
We have a very capable governor in Dr Raghuram Rajan. If the political establishment is supportive, the consolidation of banks with implementation of the four ‘Rs’ is possible. But it requires strong government will to accept recommendations of the Bank Boards Bureau, clean up the boards of PSBs and give more autonomy to the top management, making them accountable. This is the fount of crony capitalism and neither politicians nor industrialists will give it up very easily. A lot depends on how the Supreme Court responds to the Vijay Mallya case. The National Democratic Alliance (NDA) government, despite its pious posturing, is as keen on retaining its hold on PSBs as were all political formations since bank nationalisation. Although public outrage over bad loans is high at the moment, experienced politicians know that it will die down as soon as Mr Mallya stops featuring on ‘breaking news’ on prime-time television. What happens thereafter will be worth watching.

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COMMENTS

C H VENKATACHALAM

9 months ago

What India needs is banking expansion and not consolidation. Banking density is much lower in India compared to many countries. Public sector Banks should be fully transformed into mass banking. What India needs is strong banks and not big banks which will move away from the common man. Is there any guarantee that big banks will not suffer from bad loans or mismanagement. The experience is otherwise. Consolidation is an utopia and not a panacea from the ills the banks are suffering from. The present move of consolidation is driven by vested interests.
C.H. VENKATACHALAM, AIBEA

C H VENKATACHALAM

9 months ago

What India needs is banking expansion and not consolidation. What India needs is strong and vibrant banks and not big banks. Too big to fail is a myth already exposed. Big banks will move away from the common man. In no way the proposed consolidation will serve the purpose to reach the common man. Consolidation is an utopia and not the panacea to save our banks from corporate delinquents who are making the PSBs to bleed. Hope wiser counsel will prevail on the advocates of consolidation.

C.H. VENKATACHALAM, GS. AIBEA

PRAKASH D N

9 months ago

Hats off to Ms.Sucheta Dalal for speaking the truth about appointment of CMDs in PSBs. Consolidation like the slogan of Garibi Hatao, retaining its charm for ever. No politician would ever like to leave its milking cow (PSBs). From the appointment of CMDs, tenders in PSBs etc. the party in power would like to have its share of the cake. What is needed is complete autonomy to Bank's Boards and make them accountable to the Parliament. The regulator also is responsible for the today's mess. When RBI conducts annual supervision of accounts, it owes an answer to the public why suddenly things have gone bad. It is not Vijay Mallya alone, there are industrial groups like Bhushan Steel, Essar. Videocon etc. who have heavily debt ridden and got the money from PSBs without any hitch and some of them have turned NPAs. There should be a forensic audit of all the NPAs as the AQR is aimed at one time cleansing the Balance Sheet. It will throw more KFAs from the cupboards of PSBs. Fix accountability for those who had thrown public money without relevant questions being asked.

D N PRAKASH
RETIRED BANK MANAGER

Suketu Shah

9 months ago

Vinod Rai wl superceed NaMo's expectations.Super move by NaMo.

Let Mr Rai handle bank consolidation and get 27 to 10 in 2 yrs max.

vnrao

9 months ago

Commercial banks should not be allowed to deal govt based lending like to agricuture small farmers artisans and susidised loans etc it haa dubious intension to play with the funds of innoccent deposit holders if govt wants to uplift these catagories mentioned above let them estblish a seperate institution using consolidated funds.Otherwise these merges will not help

S.S.A.Zaidi

9 months ago

we need to have more of Raghuram Rajans----if we have the entire financial sectors landscape will undergo tremendous welcome change that will ensure its integrity , transparency and viability

Tomy Sebastian

9 months ago

Consolidation will reduce unhealthy competition and also duplication of costs ; hence will improve efficiency. Why are the pandits and media repeatedly trying to tarnish the PSBs of this country. Pl check whether anybody has been benefitted by the so called efficient private sector banks? May be a handful of investors and top 10-15 executives. Employees are harassed, common men don't have access, priority sectors are neglected. They resort to cherry picking only as pointed out by Mr. Varrier. PSBs, no doubt, needs improvement, but the contributions made by them in many sectors can't be ignored. Even the present govt resorts to appointing their nominees to crucial positions. PSBs still have the best talents in the industry. The govt, instead of training their guns to the PSBs, shall take concrete steps for recovery of huge sums from the corporate defaulters .

B. Yerram Raju

9 months ago

Certainly a good recall as referred to in my article on Consolidation of Banks - no cure to the present ills published in these esteemed columns.

Narasimham 1 and 2 did point out at Directed lending portfolio in the shape of priority sectors then as the source of NPAs in 1991 and 1993. He also upheld the need for special dispensation for both agriculture and small scale industries and suggested a relook at the percentage allocation for such sectors and rationalisation. While committee after committee examined priority sector allocations they only helped distancing the farmer and the micro and small industry from effective lending.
The public sector classification following the Bank Nationalisation has lost such character post liberlisation with their direction more towards profits than attaining the priority sector goals. That not a single year the 18% for agriculture and 7-8 percent for the manufacturing SSI was achieved during the last fifty five years bears ample testimony to my conclusion.
When NR-2 recommended reclassification of directed lending portfolio the status of the economy was different. Second, today as the NPA position revealed, which figure keeps changing with every analyst (as the correct figure is mystic) the source is huge corporate credit portfolio and this also is in a way a directed credit portfolio but not specifically mentioned as such.

It is true that India needed big banks but was set aside as the then government wanted to promote private sector banks of such size.

Post recession when 'too big to fail' caused tremors in the global financial sector and in its wake prompted governments to re-natiioonalise some of them and governments to pump in capital is this the right time to take on this move?

We no doubt need sufficiently big banks but we should be clear whetheer they should continue with the patronage of the government, is the question.

Create big banks but let the government keep an arms length in governance and management. Committees prepare report in accordance with the mandate and let such mandate be issued without pre-judging the issue.

MG Warrier

9 months ago

A timely recall of Narasimham Committee recommendations. As an additional input for taking the debate forward, copied below excerpts from my article on the subject published in The Global ANALYST, March 2016:
"Wholesale restructuring and revamp

The need for restructuring and revamp of the banking system was recognised within a decade of nationalisation of major private sector banks. In 1991, the Committee on Financial System (Narasimham Committee) visualised a structure for Indian Banking System with “three or four large banks that could become international in character; eight to ten banks with a network of branches throughout the country engaged in ‘universal banking’; local banks whose operations will be generally confined to a specific region and rural banks (including Regional Rural Banks) whose operations will be confined to the rural areasand whose business would be predominantly engaged in financing of agriculture and allied activities”.

There is no point in arguing now that the overhaul and professionalization of public sector banks (PSBs) should have happened along with bank nationalisation and there should have been regular ‘health checks’ and ongoing corrections. Just as a ‘health check up’ does not change the condition of a person, the re-classification of more loans as NPAs does not alter a bank’s ability to change. The need of the hour is to support banks to recover their dues from borrowers who have the capacity to repay, infuse professionalism in the banks’ working and restore the faith in the banking system. As private sector banks have failed to perform their responsibilities and are not too willing to grow (their share in banking business is less than 30 per cent), privatising the existing public sector banks is no solution. The failure of Global Trust Bank and merger of several private sector banks with PSBs during the four decades that followed bank nationalisation are fresh in our memory.
Considering the emergence of new banks in the private sector like small banks and payment banks and the likely event of new bank licensing becoming an on-tap affair- in the context of the long gap between the last bank licence issued and the issue of a couple of new bank licences last year, RBI is working on procedures and processes necessary to make this happen- restructuring the banking system cannot wait any further. In this context, revisiting the Narasimham Committee recommendations referred to above and evolving a national policy for mergers and closures as also opening of new banks/branches become relevant. At present same categories of banks compete among them in the same pockets for business. The extent of competition necessary for efficient functioning of the system is a matter of policy perception.
The background for bank nationalisation was that the banking sector which is dependent on public deposits and should remain subservient to ‘public interest’. Perhaps, GOI should also consider nationalising private sector banks which are shying away from social banking and are averse to penetrating to rural areas. Allowing some private sector banks to pick and choose clientele can create imbalances in resources mobilisation, outreach and business profiles of banks. The lament by certain quarters about taxpayers’ money being used to ‘bail out’ PSBs need to be discounted to some extent considering the fact that pay-out to government from banks by way of dividend and taxes more than compensate for the outgo on account of capital infusion."

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