Wait and Watch

In the past few years , there often was the criticism that the RBI was not reducing the the primary lending rate due to which the cost of borrowing was high for the industries. The government too wanted the interest rate to go down citing the need for faster industrial growth to generate employment. The RBI was more sinned against than sinning in this regard  maitaining that its main responsibility was to control inflation.

The mega bank scams involving big and mighty industrialists have proved that high borrowing rate should not be an issue since  there is no intent to repay the loans !

According to a news item in The Economic Times today,the collateral damage across markets and the banking industry arising out of the mega PNB scam  is around Rs 70000 crore in market value for the PSU banks and about Rs 40000 crore for the government. Can this loss  be written off as mere valuation loss ? There is also in addition the loss of Rs 11,300 crore for the PNB and other lenders plus about Rs, 3000 -40000 crore loss from the Rotomac fraud case.


 Extradition of the big cats who have fled the country  are not going to easy and quick. Imposing travel restrictions on promoters of defaulting companies is stated to another option. Even these  measures are considered by some as harsh enough take a toll on credit disbursal.

In the mean time,  people whose  money has beenn swidled can do nothing but wait and watch.

Where are we heading ?

Another default of bank loan to the tune of some  4000 crore rupees has been reported by another nationalised bank  involving a  Kanpur industrialist . He is said to have been sanctioned the loan as export financing but utilised the loan for other purposes.

This case too will follow the same ineffective process of raids, investigation, filing of FIR, arrest of some persons and their immediate bail, court proceedings etc over long periods of time. In the after math, there will also be the usual blame game by political parties.

Where are we heading ?

Unscrupulous elements in the path to becoming a strong global power

In Novemeber 2014, I wrote a blog  following up  the then Governor RBI's  comments on some Indian businessmen's propensity to cheat the banks from whom they have taken loans giving rise to stressed assets , popularly called Non Performing Assets(NPAs)

The new dispensation in the governance of the country since 2014 has attributed the  NPAs of nationalised  banks  (estimated around Rs. 6,41,057 crores in 2017 or Gross NPA ratio of 12.47 of  total assets),  mainly to the lapses of the banks' management in not enforcing the recovery of loans sanctioned to  big business houses allegedly on the directions of the previous governments, even as   some major defaulters of bank loans have  fled the country after 2014 !.

The latest is the fraud on  Punjab National Bank to the tune of about  Rs.11,300  crore by a big business house in the diamond trade, whose kingpin too has bolted away. These cases perhaps demonstrate how it is easy  to commit  fraud in India, as much easy as it is for doing business in India !

Spokespersons and analysts say that the fraud on  PNB  is due to systemic failure.Any  system,  however perfectly designed,  will ultimately involve human interaction in operating it and that in the case of a massive financial fraud like this, it can not be just a single individual within or outside the organisation.

Our methods of investigation and legal action to book the culprits  are prone to long  delays and appeals, whereas in cases like financial frauds the conviction has to be quick and salutary.

To solve the NPA problem the present government is proposing to enact the Financial Resolution and Deposit Insurance Bill to enable the recapitalisation of banks to mitigate the NPAs. However, some provisions of this Bill are said to  compromise the interests of the depositors and give the government absolute power in deciding the the fate of the banks if they go under.

The path to becoming a strong global  economic power is not going to be easy with unscrupulous elements