At a time when Britain is talking of re-nationalising critical services like the railways and water utilities and the US is pushing hard for localisation and trade protection, it is ironic that India is discussing privatising public sector banks.
While no one undermines the importance of a clean and healthy banking system, efforts should be made to understand the problem and the way forward. Fortunately, Indian banking has been immune to global financial crises because of the prudence exercised by bankers in ensuring underlying asset value. While the US and Europe suffered from the subprime crisis, Indian banks weathered the storm.
Buoyed by being world’s fastest growing economy and foreseeing growth potential post the 2008 global financial crisis, huge investments have been made in infrastructure which proved to be overly optimistic, retrospectively. However, many projects were held up during implementation owing to a variety of reasons, ranging from environmental and forest clearances, right of way and land acquisition issues, mining permissions to ensure continued raw material availability, resettlement and rehabilitation issues, to political vendetta, policy paralysis and so on.
Corporate debt restructuring has been in place since 2001. If we look at performance as on December 31, 2017, 111 cases amounting to ₹84,677 crore successfully exited out of 656 cases involving ₹4,74,351 crore since its inception, which corresponds to 17 per cent number-wise and 18 per cent amount-wise — which is dismal.
Subsequently, the RBI came out with relief schemes like SDR, 5/25 and S4A. Banks had to initiate relief measures within the policy provisions, while simultaneously protecting the loans from NPA norms. While private banks could hive off bad loans with a haircut due to their operational flexibility, PSBs had to stick with them as they had to demonstrate that laid down vigilance norms were complied with. Ultimately, all these schemes stand withdrawn.
In 2013, the Government set up the Project Management Group (PMG) to resolve a variety of issues including fast-tracking approvals for setting up and commissioning large public, private and public-private partnership (PPP) projects. Bankers were of the view that the NPAs would ease to a large extent as required permissions would be in place and many projects would see the light of day. The performance of PMG as on January 31, 2018, indicates that 1794 (54 per cent) issues related to 549 (63 per cent) projects amounting to ₹20,01,947 crore (54 per cent) were resolved as compared to a total number of 3324 issues, 872 projects, involving ₹37,18,718 crore. Contrary to expectations, the resolved issues have not resulted in generation of cash flows and consequent resolution of NPAs.
Banks have intervened at the company level, RBI at the policy level and the Government at the industry level, but there is still no concrete resolution visible. It is time to recognise the problem as systemic, also partly due to the opening up of the economy. India cannot be isolated from global up and down cycles. While no one who committed an act of commission or omission should be spared, it is in the interests of the country to realise that, just like companies, industries and countries have cycles. It is the need of the hour to bring back the assets to operation wherever possible or cut the dead wood and move forward before values go down further and ultimately become ‘nil’. Fortunately, the macroeconomic environment is favourable with reasonably high growth of GDP, moderate inflation and manageable fiscal deficit.
