Get to the bottom of bank NPAs

The huge non-performing assets (NPAs) of banks is becoming a cause of major concern for the Indian economy. Indiscriminate lending most of the times out of political pressure and the boards of the banks and other financial institutions becoming mere rubber stamps for carrying out the diktats of political bosses has resulted in a situation where public money has been squandered away on unviable and dubious projects by a set of speculative and unscrupulous entrepreneurs. 

After liberalisation the caged tiger( the Indian entrepreneurial ability) which was supposed to have been released out of the shackles of government controls, quotas and restrictions and was supposed to put the Indian economy into a trajectory of growth – claiming our rightful space in the global economy – has in fact turned out to be a tiger uncaged which went on devouring the public funds and public savings, by investing in unviable and speculative projects which are now up for sale at a fraction of the capital investment made on them.

Reasons are not far to seek. Whether it was in the government-controlled quota license permit raj or afterwards what was proclaimed as the great stroke of liberalisation and unshackling of Indian enterprise, the players remained the same with no commitment to industry hard work and ethical business but more interested in seeking speculative short-term profits by manipulating  the system.

In the control economies of 60s to 90s, this entrepreneurial class made their money with right political and bureaucratic connections by obtaining a licence, not putting up the plant or preventing the competitor from putting up a plant or by obtaining a licence and selling it for a premium to others. These are the types of activities which economists termed as DUPES meaning directly unproductive activity of obtaining a licence or permit and indulging in business of trading in it and making money out of it.

Hope was that once the liberalisation happens, genuine enterprises would grow in the country taking the country forward. But what actually happened was the reverse. The same set of manipulative speculative business class who were earlier the beneficiaries of the quota permit raj this time have taken the general public for a ride in terms of coming with public offers with a lot of publicity and getting public subscription to their projects. 

All those projects started with the big fanfare are languishing today. As if this is not enough, the same set-up of entrepreneurial business class was able to top up their finances by deceiving state-controlled financial institutions the banks and were able to get huge funding for their projects, which have today turned out to be non-performing assets putting the whole economy into a major financial crisis. 

The bankers who used to cry foul about the loan melas that were being organised for supporting the economic activity of the less privileged class have succumbed and released huge funds in most of the cases flouting all established norms. At the root of the problem is the mindset of the Indian entrepreneurial class which is used to speculative return during the quota licence raj and would like to continue with the same type of speculative returns on enterprises even in the liberalised era. 

The nexus between this entrepreneurial class and the political class and weak regulatory framework under which they operate helps them to get scot-free even after committing such major financial offences, which in any other better regulated country would have resulted in their being brought to book.

These white-collar criminals today are there as part of the ruling network whichever party is in power. It is very essential to properly investigate all these scams of mammoth proportion and bring the culprits to book. It is not just a question of arresting the accused but to get to the root of the issue as to where all this money has gone and getting it back into the financial mainstream. 

That alone restores the credibility of the government and ensure that the Indian economy does not sink further into a vicious cycle of lack of funds for genuine enterprise. If at all there is the mandate given to this government in 2014 by the electorate it is the hope that they would be able to deliver in this direction and put the economy back on track . Failure to deliver on this front, whatever maybe the achievements of government on other fronts, may not be taken kindly to by the electorate in 2019. 

By: Krishna Rao Iyr
(Writer is former Chief Secretary, Government of Andhra Pradesh)