This is election season. Almost every day, in the rallies, the air resonates with allegations [leveled by the President of the grand old party, Congress] of Modi – government letting a couple of his alleged industrialist friends swindle over Rs 300,000 crore of money belonging to the public sector banks [PSBs].
The purported reference is to the money owed by the industrialists to the PSBs which they did not pay back and turned into non-performing assets [NPAs]. According to Rahul Gandhi, Modi has allowed them to go scot free. This is bizarre!
The NPAs are the offshoot of indiscriminate lending during 2008-2014 [when Congress was in command] by PSBs to those patronized by the rulers without conducting due diligence. The banks gave more loans to cover up unpaid loans. Despite turning NPAs, those loans were made to look standard.
Modi asked the Reserve Bank of India [RBI] to conduct an asset quality review [AQR] to remove the maze, make the NPAs transparent and implemented an orchestrated action plan to deal with them. At the core is Insolvency and Bankruptcy Code [IBC] – a law enacted by his government 2 years ago. The outcomes of the IBC processes is very encouraging.
According to the corporate affairs secretary, I. Srinivas, during the last two years, 9,000-odd cases were received under Corporate Insolvency Resolution Process [CIRP] – including those pending with erstwhile Board for Industrial and Financial Reconstruction [BIFR]. Of these, about 50 % or 4400 cases have been resolved.
More than 80 % of the resolved cases or 3,500 were disposed of prior to admission in National Company Law Tribunal [NCLT] on the joint request of debtor and creditor, after being brought to the IBC by the financial or operational creditor. Such resolution – albeit at the pre-admission stage – resulted in claims amounting to about Rs 120,000 crore getting settled.
Of the 900 odd cases that were admitted, resolution process for about 400 cases is complete. Of these, resolution plans for 60 cases have been approved and liquidation order passed for 240 cases and the balance have gone in appeal. The resolved cases have led to recovery of about Rs 71,000 crore.
Then, there are cases which are in fairly advanced stage of processing. On finalization [expected to happen so], those will yield another about Rs 50,000 crore taking the total value of resolutions to almost Rs 120,000 crore. Add up the pre-admission claim settlement, it becomes Rs 240,000 crore.
Finally, there are non-standard NPA accounts wherein, the defaulting borrowers on their own volition have come forward to pay back the overdue amount of about Rs 50,000 crore. With this, the total value of settlement would be Rs 300,000 crore.
Thus, in sharp contrast to the fabricated assertions of Congress, this government has recovered Rs 300,000 crore. This amount is one third of the total banks NPAs of about Rs 1000,000 crore. This is an unprecedented success.
Going ahead, many more resolutions leading to unlocking of bank’s money trapped in NPAs are expected besides, minimizing the possibility of fresh slippages. This is because the architecture put in place to deal with insolvency and bankruptcy under the new law strikes all the right nodes and provides for timely corrective action.
The most crucial pressure point is that the very existence of this law with stringent conditions and timelines puts fear in the mind of a defaulting borrower that he will lose ownership and control of the company if he does not turn up to clear the dues. It is precisely this fear which prompted several of them to pay back [see above: third scenario] and many more will come forward.
Second, under the amended Banking Regulation Act [BRA], RBI has got powers to push banks into action mode. After giving them a grace period of 6 months from the day an account becomes NPA during which the banks may come up with a resolution plan, on its expiration, it will have to compulsorily refer the case to NCLT. So, the banks cannot afford to sit complacent which they were doing earlier.
Third, under the IBC, NCLT gets 6 months to complete the resolution process; extendable by 3 months under extraordinary circumstances. This keeps the stakeholders viz. the committee of creditors [CoC], bidders/suitors and judicial authorities on the tenterhooks so that the capital embedded in the enterprise is conserved and resolution process yields maximum value.
Fourth, the banks need to report defaults above Rs 5 crore to the Central Repository of Information on Large Credits [CRILC] on a weekly basis. This helps keep a tab on possible diversion of borrowed funds to activities [including shell companies of the defaulting promoter] other than the project for which loan is taken. This will nip in the bud any chance of the loan becoming an NPA.
Finally, the government has made fundamental changes in the eco-system of lending whereby banks must exercise due diligence while extending loans. The entire exercise has to be done in a ‘transparent’ manner making full use of the ‘technology’. In other words, the days of so called ‘phone banking’ [an euphemism by Modi to describe irregularities in loan sanction] are numbered.
Far from helping dubious industrialists/businessmen who swindled bank funds with the help of pliable persons in the ruling establishment [under erstwhile UPA – regime], Modi has put in place robust legal and administrative systems to get that money back and ensure that such loot does not happen in future.
Together with infusion of requisite capital, he is laying the foundation for healthy and robust banks so that they can meet the requirement of expanding industries and businesses consistent with an economy on a fast and sustained growth trajectory.
It is for the public to ensure that this process is not derailed. All that it needs to do is not get swayed by the false propaganda unleashed by Congress.