Loans, Waivers and Tax Sops: the Recipe to Get Richer

First of all, it comes in the form of easy loans the government owned banks are lining up to lend. Bad loans of 21 public sector banks jumped at an alarming rate of 83 per cent to Rs 3.5 lakh crore in 2015-16 from Rs 1.6 lakh crore in the previous financial year. The largesse to the rich is in the form of write offs and restructuring of a major part of the Rs. 3.5 lakh crore of bad loans. This is the dressing up of the books that the banks have done.

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This dressing up of loans even forced the central bank governor Raghuram Rajan to say, “You can put lipstick on a pig, but it doesn’t become a princess. So dressing up a loan and showing it as restructured and not provisioning for it when it stops paying, is an issue. Anything which postpones a problem than recognizing it is to be avoided.”

This bounty of "restructuring of loans" comes on top of the tax concessions that the rich have received in the Union Budget.. In 2015-16, the government lost potential tax revenue worth a staggering Rs 6.11 lakh crore due to various exemptions, concessions, rebates, etc, given to sections of taxpayers (Read rich…) This is an increase of Rs 56,779 crore over the previous fiscal.

According to Banking Education, Training and Research Academy (BETRA), which recently bought out a dossier on the extent of problem, “taking loans from banks and deliberately not repaying them has become an industry by itself. People’s money is for people’s welfare and not for corporate loot."

The whooping Rs 9.66 lakh odd crore is the price we are paying to help these poster boys of India Inc to continue to party in style. During the eleven year period from 2005-06, when the government started to make public this estimate, a whopping amount of Rs.48 lakh crore was doled out to corporate sector in the form of tax concessions. At only a fraction of this amount, it would provide schools for all the Indian children, provided world class healthcare to all Indians, build roads to ensure connectivity, and provide food for all the poor at subsidized rates.

“Instead of addressing the issue of bad loans, the government is looking at consolidation of associated banks as a way to divert attention from the real issue. There should be a comprehensive law to tackle this issue. The bank chairman should be made accountable for such matters,” says Devidas Tuljapurkar Gen Secretary All India Bank of Maharashtra Employees Federation.

Compare the above largesse to the rich with the following. Special Component Plan (SCP) for the Scheduled Caste and Tribal Sub Plan (TSP) for the Scheduled Tribe are components of Union budget, which are in effect since 1979-80. Against the total amount of Rs.1,38,603 that was to be statutorily allocated for SCP & TSP, an amount of Rs. 62, 838 crore has been provisioned in the budget 2016. Education got an allocation of Rs. 72,400 crore in 2016 Budget -- a mere 4.9 per cent increase over the previous fiscal.

Former finance minister P. Chidambaram, pointed out some of these. He said – ‘the total allocation for agriculture and farmers welfare shows an impressive jump from Rs.15,829 crore in 2015-16 (Revised Estimate) to Rs.35,984 crore. How did the government pull the rabbit out of the hat? By the simple expedient of shifting allocation for interest subsidy for short term credit from Department of financial services to Department of Agriculture, Cooperation and farmers welfare.

The latest quarterly financial numbers reported by Indian banks show a sharp increase in bad loans. Net profits have dropped as a result of higher provisions, as the Bank of Baroda’s quarterly results posted on Saturday showed emphatically — a Rs.3,342 crore loss down from a net profit of Rs.334 crore in the same quarter last year.

In other words, spiking bad debt and higher provisions to cover them caused 10 Indian state-owned banks to report combined losses of Rs, 15,000 crore for the March quarter.

It is very apparent now that banks have been under-reporting bad loans, a systemic error successive government failed to fix. Punjab National Bank (PNB) is the worst offender, going by the numbers. Its gross bad loans more than doubled between the September and March quarters. The bank now has more than Rs.55,000 crore in bad loans (12.9per cent of total loans) with the likelihood of more to come. The bank now has the dubious distinction of reporting the biggest loss in Indian banking history atRs.5,367 crore, owing mainly to bad loans. In the quarter just ended. Among the large private banks, ICICI Bank Ltd has seen the sharpest jump in gross NPAs by 65per cent. It also has the highest gross NPA ratio among the private sector lenders at 5.8per cent

If the government doesn’t act swiftly to clean up the mess, the Indian banking sector is up for a lot of trouble, last thing the economy, which is under a lot of stress, needs.