The Non-Performing Excesses

In August 2000, alarmed by the huge burden of non-performing assets (npas) with the financial system, finance minister Yashwant Sinha issued a strong warning to banks to reduce it. He also gave them a September 30 deadline to settle the pending cases. Almost a year later, the npa burden is far from getting lighter—it's actually gone up by two-thirds!

npas with banks and FIs were Rs 39,804 crore at the end of 1998-99. Despite Sinha's warnings, it hit Rs 58,646 crore by end-March, 2000. Much of this is the 27 public sector banks'—Rs 37,809 crore. The contribution of three FIs—icici, idbi and ifci—rose to Rs 15,288 crore in the same period. npas continue to grow this year too, though the rate of growth seems to have slowed.

It would be wrong to blame banks alone for this mess, especially when some of the big corporate names are involved. According to data collected by bank unions from the Reserve Bank of India, members of the country's apex chambers of commerce and industry account for around 70 per cent of total npas. Members of the high-profile cii were responsible for almost 41 per cent of gross npas, amounting to nearly Rs 25,000 crore.

As expected, public sector banks were the worst hit. They filed an unbelievable number of 5,221 suits, while FIs filed 2,302. Says a top bank official on condition of anonymity: "Hopes for the settlement of the cases or for recovery are bleak because many of these companies have either shut shop or turned insolvent." Among those topping the union list are the Parasrampuria group with Rs 532.95 crore, East West Travel & Links with Rs 246.88 crore, Alpine Industries with Rs 228.75 crore, Altos India with Rs 197.41 crore and the Binny group with Rs 142.72 crore.

To take control of the situation and give banks a breather, the government announced a liberal One-Time Settlement scheme for public sector banks to wipe out their npas for which the September deadline was extended to March 31, 2001. The Indian Banks' Association (iba), however, takes credit for a slowdown in npa growth. iba officials maintain that steps taken by the banks have brought down the size of bad debts and doubtful assets, even the pace of conversion of a good asset to a non-performing one. Encouraged by this small success, the government has further extended the deadline to June 30 and the iba is hopeful of making the most of this extension.

The unions, however, smell a rat. Says All India Bank Employees' Association general secretary Rama Nand: "The one-time settlement scheme is an eyewash. The banks are actually writing off massive amounts while recovering only a fraction of the actual debts to show results in the account books. Since book adjustment is permissible within the law, nothing can be done about it. But in the end, in most cases, the amount actually recovered is much less than the principal. This shows that the banks are taking in huge losses to show that outstandings are being recovered and npas are reduced, while the defaulters are going scot-free with taxpayers' money."

The iba feels that in a situation like this, whatever the banks can recover is an achievement. Says iba chairman S.S. Kohli: "The one-time settlement scheme has been a sincere attempt to recover old dues through a compromise route. Under this, banks have settled npa cases involving Rs 3,476 crore. Out of this, Rs 1,746 crore has been recovered up to March 31. The rest will be recovered in the next 12 months. Wherever borrowers are not coming forward to repay, banks are initiating legal action. " The iba feels that the steps taken in recent times to strengthen the Debt Recovery Tribunals set-up had helped the recovery process.

The final figure of recoveries will be available in the coming weeks, and prove which one of these claims is right.