CPI(M) General Secretary Sitaram Yechury has sent a letter to Prime Minister Narendra Modi opposing the proposal to create a “bad bank” to deal with the NPAs by corporate houses. This is the second letter by Yechury on the issue of NPAs to Modi.

In the first letter, he had cautioned the Centre against recapitalisation plans of public sector banks.

Citing recent reports, he said in the letter sent on Tuesday that bad loan provisioning for most state-owned banks doubled – and even trebled in some cases -- in 2015-16.

“To make matters worse, the core earnings of most of these banks have fallen grossly short of the requirement for bad loan provisioning. There has been a lack of concerted effort to recover these bad loans, and your government has instead waived Rs 59,547 crore of bad loans of big borrowers in 2015-16. All this while, the farmers continue to be hounded for repayment of minor amounts in drought years,’’ he said.

The Rajya Sabha MP said big borrowers have viable assets which can be easily recovered by banks, if backed up with political will and determination.

“Instead, we have seen a proposal to divert all the bad loans from state-owned banks by creating a single ‘bad bank’. It is an attempt to portray a clean-up of bank account books by diverting the bad loans to a separate new entity, which will still be government owned,’’ he added in the letter.

Yechury said the proposed “bad bank” will still be furnished by public money as all the other banks will be recapitalised by the government, while big borrowers would be allowed to go scot free at the cost of the honest tax-payer.

“This amounts to the cronies being rewarded for their profligacy, bad business practices and their lavish personal lifestyles by the hard earned savings of the vast majority of the middle classes and the poor of this country,’’ he said.

He said that an earlier proposal to create a “bad bank” was publicly rejected by the former RBI governor, Raghuram Rajan.

“He had identified the ‘moral hazard’ problem of this proposal, where the banks would continue to lend to the same big borrowers who would display scant regard for returning these loans,’’ he said.

Before any attempt at whitewashing the bad loans by recapitalising the banks, the principle of “Recovery First, Recapitalise Later” must be followed in letter and spirit of the government, Yechury said.

“To not do so would confirm our worst fears of your government – which has written off Rs 1,12,089 crore of loans of big borrowers -- being beholden to crony capitalism,’’ the letter said and urged Modi to reject the bad bank proposal.

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