The All-India Bank Employees Association, which will observe December 5 as an ‘All-India Demands Day’ to highlight the threat of bad loans to the banking sector, has urged the Government to publish the names of all loan defaulters who owe banks more than a Rs 1 crore.
The association also wants the Government to make wilful default of bank loans a criminal offence, and bring changes in debt recovery laws to speed up recovery of loans.
C. H. Venkatachalam, General Secretary of AIBEA, pointed out in a statement that bad loans in public sector banks had leapfrogged over the last few years. While the gross NPA (non-performing asset) was Rs 39,030 crore in March 2008, it jumped to Rs 1,64,461 crore in March this year.
The quantum of bad loans in the entire banking sector, including foreign banks, is now over Rs 2-lakh crore.
Fresh bad loans were growing at an alarming pace. Quoting RBI data, he said banks had added nearly Rs 5-lakh crore to their bad loans between 2007 and 2013. “There clearly is a nexus among borrowers, banks and political administration,” Venkatachalam said.
Provisioning burden
He noted that provisioning for bad loans was taking away a huge chunk of banks’ profits. In just five years, between 2008 and 2013, the banks made a bad loan/NPA provisioning of Rs 1,40, 266 crore. “It appears that banks are earning profits only to donate the same to hide corporate delinquency,” he pointed out in the statement.
Of the gross NPA of Rs 1.64-lakh crore, just four top bad loans accounted for Rs 22,666 crore. And, of the gross NPA, Rs 68,000 crore was of borrowings above Rs 1 crore.
The statement alleged that the scheme of corporate debt restructuring was a cover-up for bad loans.
Most banks suppressed the enormity of their NPAs, by showing reduced amounts of bad loans through provisioning, write-offs, concessions, waivers, one-time settlements and other means. “Of late, banks are resorting to heavy restructuring of bad loans to artificially show them as performing loans.”
Write-offs rising
The amount of write-offs is on the rise. According to the RBI, bad loans worth Rs 1.41-lakh crore was written off during 2007-13. Most of these write-offs were in favour of the big defaulters and corporate borrowers.
At the same time, the provision-coverage ratio was falling. Provisioning was a back-up against any possible contingency, but because of the increase in bad loans, banks were unable to make adequate provisions, thus making the banks more vulnerable to risks.
The current ratio was just 45 per cent, while the average provisioning ratio globally was 70-80 per cent.
In view of the alarming bad loans situation in the banking sector, AIBEA has called upon its members to mount a relentless effort to recover bad loans and save the banks.