BRP Bhaskar
Gulf Today
The Financial Resolution and Deposit Insurance (FRDI) Bill, which is before a joint committee of Parliament, ostensibly, seeks to protect the interests of the banks as well as the depositors. Actually it takes away the protection deposits of up to Rs 100,000 now enjoy under a 1960s law enacted following the collapse of a couple of banks.
Considering the erosion in the value of the Rupee over the past few decades, the government should have revised the law to extend protection to deposits of up to Rs 1 million. Instead, it has put in the draft law a clause which empowers a new authority to be known as Resolution Corporation, to modify the nature of the deposit if the bank is in danger of becoming unviable.
As MK Venu, a well-known economic and political analyst, has pointed out, if the government-owned State Bank of India which has deposits of over Rs 20,000 billion becomes vulnerable enough to be referred to the Resolution Corporation, it can order conversion of 10 per cent of all deposits into equity shares or interest-bearing preference shares of the bank. This means use of a part of the deposits to enlarge the bank’s capital base without the depositors’ permission.
The SBI, already India’s largest bank, became bigger still with the merger of five associate banks with it last April and is now the world’s 45th largest. That doesn’t mean it is strong and depositors need not worry about the safety of their money.
According to CAREs Ratings, the credit rating agency, as on June 30 this year the SBI topped the list of 38 banks with non-performing assets (NPAs) totalling Rs 8,293.38 billion. Its own share of NPAs was 1,880.68 billion, or 22.7 per cent of the total.
In the financial year that ended on March 31, 2017 the state-owned banks wrote off bad loans totalling Rs 816.83 billion. This was 41 per cent more than the previous year’s figure of Rs 575.86 billion and almost three times the 2012-13 figure of Rs 272.31 billion.
Raghuram Rajan, whom the Modi government eased out of the office of Governor of the Reserve Bank, the country’s central bank, had launched a balance-sheet clean-up drive by bringing out hidden bad loans. This resulted in the SBI’s NPAs shooting up from 4.25 per cent of the total advances in March 2015 to 7.14 per cent in September 2016.
That year the SBI wrote off bad loans of Rs 70.16 billion of 63 of its top 100 wilful defaulters fully and of 31 others partially. Its biggest defaulter at that time was Vijay Mallya, a playboy businessman who owed Rs 69.63 billion to 17 banks, including Rs 12.01 billion to the SBI. He quietly slipped out to London, where he is now facing extradition proceedings.
Under political patronage and managerial profligacy, the banking system has been slipping steadily over the years. Successive governments have attempted to reform it but without addressing the issues of political interference and internal mismanagement.
In 2002 the first Bharatiya Janata Party-led government, headed by AB Vajpayee, enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act which allowed banks to seize collaterals if loans turned out to be NPAs. The banks used the law ruthlessly against micro, small and medium enterprises.
That law did not cover the big defaulters. Not that there are no laws to deal with them. Their economic clout and proximity to the political rulers put them beyond the reach of the law, unless circumstances compel the authorities to act, as in the case of Vijay Mallya.
Currently at the top of the NPA list is the Reliance ADAG group of Anil Ambani, the younger of the scions of the country’s richest family. Its balance-sheet shows debts of about Rs 1,250 billion. It is followed by metals and mining giant Vedanta group of Anil Agarwal with debts of Rs 1,030 billion and the Essar group of the Ruia brothers with debts of Rs 1,010 billion.
At the fourth place is the Adani group of Gautam Adani which owes banks Rs 960.31 billion. Adani had made available his personal aircraft for Narendra Modi’s 2014 whirlwind election tour and he accompanied Modi on several foreign trips he undertook as the Prime Minister.
Following a public uproar, Finance Minister Arun Jaitley has offered to take a fresh look at the FRDI bill after the report of the Parliament committee is received. That is a virtual admission that, as with demonetisation and the goods and services tax, his ministry has acted without due diligence. -- Gulf Today, December 12, 2017.
Gulf Today
Coming close on the heels of the disastrous and apparently fruitless demonetisation exercise, the Modi government’s plan to enact a law with provision to bail-in banks in distress has set alarm bells ringing among the middle class.
The Financial Resolution and Deposit Insurance (FRDI) Bill, which is before a joint committee of Parliament, ostensibly, seeks to protect the interests of the banks as well as the depositors. Actually it takes away the protection deposits of up to Rs 100,000 now enjoy under a 1960s law enacted following the collapse of a couple of banks.
Considering the erosion in the value of the Rupee over the past few decades, the government should have revised the law to extend protection to deposits of up to Rs 1 million. Instead, it has put in the draft law a clause which empowers a new authority to be known as Resolution Corporation, to modify the nature of the deposit if the bank is in danger of becoming unviable.
As MK Venu, a well-known economic and political analyst, has pointed out, if the government-owned State Bank of India which has deposits of over Rs 20,000 billion becomes vulnerable enough to be referred to the Resolution Corporation, it can order conversion of 10 per cent of all deposits into equity shares or interest-bearing preference shares of the bank. This means use of a part of the deposits to enlarge the bank’s capital base without the depositors’ permission.
The SBI, already India’s largest bank, became bigger still with the merger of five associate banks with it last April and is now the world’s 45th largest. That doesn’t mean it is strong and depositors need not worry about the safety of their money.
According to CAREs Ratings, the credit rating agency, as on June 30 this year the SBI topped the list of 38 banks with non-performing assets (NPAs) totalling Rs 8,293.38 billion. Its own share of NPAs was 1,880.68 billion, or 22.7 per cent of the total.
In the financial year that ended on March 31, 2017 the state-owned banks wrote off bad loans totalling Rs 816.83 billion. This was 41 per cent more than the previous year’s figure of Rs 575.86 billion and almost three times the 2012-13 figure of Rs 272.31 billion.
Raghuram Rajan, whom the Modi government eased out of the office of Governor of the Reserve Bank, the country’s central bank, had launched a balance-sheet clean-up drive by bringing out hidden bad loans. This resulted in the SBI’s NPAs shooting up from 4.25 per cent of the total advances in March 2015 to 7.14 per cent in September 2016.
That year the SBI wrote off bad loans of Rs 70.16 billion of 63 of its top 100 wilful defaulters fully and of 31 others partially. Its biggest defaulter at that time was Vijay Mallya, a playboy businessman who owed Rs 69.63 billion to 17 banks, including Rs 12.01 billion to the SBI. He quietly slipped out to London, where he is now facing extradition proceedings.
Under political patronage and managerial profligacy, the banking system has been slipping steadily over the years. Successive governments have attempted to reform it but without addressing the issues of political interference and internal mismanagement.
In 2002 the first Bharatiya Janata Party-led government, headed by AB Vajpayee, enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act which allowed banks to seize collaterals if loans turned out to be NPAs. The banks used the law ruthlessly against micro, small and medium enterprises.
That law did not cover the big defaulters. Not that there are no laws to deal with them. Their economic clout and proximity to the political rulers put them beyond the reach of the law, unless circumstances compel the authorities to act, as in the case of Vijay Mallya.
Currently at the top of the NPA list is the Reliance ADAG group of Anil Ambani, the younger of the scions of the country’s richest family. Its balance-sheet shows debts of about Rs 1,250 billion. It is followed by metals and mining giant Vedanta group of Anil Agarwal with debts of Rs 1,030 billion and the Essar group of the Ruia brothers with debts of Rs 1,010 billion.
At the fourth place is the Adani group of Gautam Adani which owes banks Rs 960.31 billion. Adani had made available his personal aircraft for Narendra Modi’s 2014 whirlwind election tour and he accompanied Modi on several foreign trips he undertook as the Prime Minister.
Following a public uproar, Finance Minister Arun Jaitley has offered to take a fresh look at the FRDI bill after the report of the Parliament committee is received. That is a virtual admission that, as with demonetisation and the goods and services tax, his ministry has acted without due diligence. -- Gulf Today, December 12, 2017.
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