Sunday, August 06, 2017

Commentary: NPAs show a jump of 41% in current year

In recent years in India, the banks have failed to curb a steady rise in the Non-Performing Assets [NPAs], the term NPA just being a euphemism for defaulted loans. The reason behind this is however neither the small businessman nor the farmer but the major behemoths. The bigger industrial groups are often in a position to argue that further loans will enable them to repay the loans incurred earlier – this logic can, however, go altogether awry as the loans pile up and the financial system is drained of resources. The question the ordinary citizen may ask here is – where will the money come from and how will the vacuum get filled up? The answer is a long story of banking mismanagement and political interferences in the financial sector that amounts to what is often called ‘crony capitalism’.

According to an earlier report ‘The Reserve Bank of India (RBI) is moving to resolve the bad loan crisis with an Internal Advisory Committee (IAC) of the RBI having identified 12 accounts of corporate borrowers who owe over Rs 5,000 crore each — and overall involve an amount of close to Rs 175,000 crore — for insolvency proceedings under the newly enacted Insolvency and Bankruptcy Code 2016 (IBC).’

The present report provides little analysis but is a surely an update for 2017 – it seems that the NPAs rose by 41 per cent in the current financial year despite the government’s professed attempts to curb such growth. Part of the same logic is the argument that there are businesses and banks that are too big to be allowed to fail. This ensures that the taxpayer is eternally committed to shoring up these entities lest the resulting turbulence upset the financial system in some fundamental ways. The interesting thing about the modern state in India and elsewhere is while it withdraws from sectors like education and health and to some extent even from infrastructure, it turns pro-active in securing loans for certain business houses presuming them to be growth leaders and creators of jobs. The NPAs are thus indicators not simply of a persistent policy blunder but also reveal some deep fault lines within the state apparatus.  

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