In order to highlight the bad loans or NPA menace in public sector banks, AIBEA decided to observe 5th December as 'All India Day' by wearing badges and holding rallies across the country

All India Bank Employees' Association (AIBEA), in order to highlight the increasing bad loans or non-performing menace in public sector banks (PSBs) has decided to observe 5th December as 'All India Day' by wearing badges and holding rallies.

According to the Union, over the past seven years, there are fresh bad loans worth Rs4.95 lakh crore only in PSBs, while during the same period, these lenders wrote off band debts worth Rs1.4 lakh crore. Top four defaulters of state-run banks constitute Rs23,000 crore of NPAs, the AIBEA said.

AIBEA has demanded remedial measures to address the growing menace of NPAs in state-run banks. The Union has demanded PSBs to publish list of bank loan defaulters of Rs1 crore and above, make wilful default in bank loan a criminal offence, order investigation to probe nexus and collusion (between the borrower and officials), amend Recovery Law to speed up the process, take stringent measures for recovering bad debts and not to incentivise corporate delinquency.
 

Here are some details about bad loans in PSBs shared by AIBEA...

People’s money for people’s welfare and not for private corporate loot

Bad loans are inevitable part of the banking business because in every loan there is an element of risk involved and a possibility of loan not being repaid. But in the last two decades we find that taking huge loan from the Banks and making it as NPA has been perfected as an exquisite art by the big and corporate borrowers. Taking loans from the banks, deliberately not repaying it and getting away from it through write-offs has become an industry by itself. But as bank employees we know that this is nothing but daylight robbery and open loot of public money because loans are given by the banks from the savings of the general public. That is why AIBEA slogan is – People’s money for people’s welfare and not for private corporate loot.
 

Bad loans – a growing menace
 

Bad loans in the banks have been alarmingly increasing over the years. Gross NPAs and bad loans in the public sector banks have increased from Rs39,000 crore as on 31 March 2008 to Rs1.64 lakh crore as on 31 March 2013.

If we include the bad loans in the private banks and foreign banks and other financial institutions, the total bad loans are more than Rs2.50 lakh crore.
 

Increasing bad loans: Gross NPA

Thus, in all the banks, the bad loans are going up. As seen in the figures above, there is 50 % increase in bad loans during the last year. 
 

Increase in provisions for bad loans – cannot be ignored any longer  
 

Spurt in the provisions being made from the earned profits of the banks is another serious challenge faced by the banking industry today.

Fresh bad loans on the increase – there is a method in the madness
 

Bad loans in the Banks used to be explained as legacy issues, money stuck up in some old accounts, etc. But, year after, fresh bad loans are being added in the banks. There is clearly a nexus between borrowers, banks and political administration.

According to RBI, the banks have added Rs4.95 lakh crore to their bad loans between 2007 to 2013.

Provisions are bulging – Profits are dwindling – Why ?
 

Banks are already working under lot of stress and strain. And yet the Banks are able to earn profits due to the hard work put in by the entire workforce handling various types of banking services and operations. But the provisions for bad loans are taking a heavy toll on the profits and the net profits are dwindling. It appears that Banks are earning profits only to donate the same to hide the corporate delinquency.

NPAs constituted by top four defaulters in PSBs
 

Bad loans of the big borrowers are increasing alarmingly and the inaction against them is encouraging them to deliberately default the bank loans. The following figures will reveal the extent of bad loans in top four borrower’s accounts in PSBs.

Gross NPAs of above Rs1 core accounts: Rs68,000 crore stuck up:

Catch the culprits – match the statement of FM
 

Recently our Finance Minister made the statement: “We cannot have an affluent promoter and a sick company. Promoters must bring in money. We wish banks take firm steps to recover NPAs.” As of June, 2013, total Gross NPAs in public sector banks has crossed Rs180,000 crore. 35% of these bad loans i.e. Rs 63,678 crore are loans over due from top 30 corporate are big borrowers. Finance Minister wants banks to take firm steps to recover these bad loans. Then what is stopping the banks? Why are they not catching the big culprits? It is high time that tough action is taken to recover these bad loans.

Corporate debt restructuring – a conduit to hide bad loans – Rs3.25 lakh crore hidden so far 
 

Already bad loans in the banks are being suppressed and depressed by showing reduced amounts of bad loans through provisioning, write-offs, concessions, waivers, one time settlements, compromise proposals, etc.  Of late, banks are resorting to heavy restructure of bad loans to artificially show them as performing loans. 
 

According to RBI, the total bad loans restructured as good loans has exceeded Rs3.25 lakh crore of which loans restructured in favour of corporate borrowers is Rs2.70 lakh crore.
 

Pig with a lipstick does not become a princess – RBI Governor 
 

In this scenario of increasing portfolio of restructured loans, it is crystal clear that CDR is only a scheme to hide the bad loans from public eyes. RBI report clearly says that Restructured Loans are nothing but potential and postponed NPAs. A few days ago, RBI Governor has also expressed his concern about the tendency to evergreen and dress up the bad loans to avoid provisions. 
 

To quote him, he said: "You can put lipstick on a pig but it doesn't become a princess. So dressing up a loan and showing it as restructured and not provisioning for it when it stops paying, is an issue. Anything which postpones a problem than recognising it is to be avoided".
 

Provision coverage ratio falling down – a matter of concern 
 

Even when the bad loans are increasing, provision made against the same is a back-up against any possible contingency. But because the increase in bad loans is so huge that Banks are unable to make adequate provisions with the result the NPA provision coverage ratio in the banks is coming down in the last few years. This means that the Banks are getting more vulnerable and susceptible to risks against loan losses.
 

As compared to the provision coverage ratio of 68% as on 31-3-2012, this has been drastically reduced to 62% as on 31-3-2013. In most of the public sector banks, the provision coverage ratio has drastically fallen. According to RBI, the ratio in the entire banking system has fallen from 55% to 45 % while the global average ratio is 70 to 80%. 
 

NPA provision coverage
 

(Ratio of provisions made against Gross NPA)

Increasing write off – robbing Peter to pay Paul 
 

The amount of write offs towards bad loans is also on the rise in the Banks. According to RBI, the bad loans worth Rs1.41 lakh crore were written off during the period 2007 to 2013. And most of these write offs were in favour of the big defaulters and corporate borrowers.
 

BAD LOANS – A SYSTEMATIC LOOT:
 

For some time, it was sought to be explained that increase in bad loans in Banks is due to priority sector and agriculture loans. Later, it was sought to be diluted as system generated NPAs. But now it is becoming clear that it is a systematic loot of public money. Even the government has confessed that the big and rich borrowers are the real culprits.