Economists may dispute recent growth estimates put out by the economic survey of the GOI (Government of India), but aiming for economic growth remains the top policy agenda. This has been the norm for over two decades now. While the Hindu growth rate of less than 5% per annum until 1980s is represented as an embarrassment, accelerating growth rate after 1991 has been a matter of national celebration. Economic growth has little relationship with quality of economic growth, cost of growth or even the quality of life it endows on a majority of citizens. Evidence that accelerated growth has not speeded up decent employment have been suppressed, so have issues of environmental degradation and ensuing public morbidity. Growth agnostics have been sealed off by suggestions (validated by official data) that poverty levels in the country have declined as a result of ‘trickling down’ growth.
However, what could not be suppressed were the enormous amounts of bad loans banks have accumulated trying to pump up growth. Disclosure of vast amounts lost led to an uproar in March 2016. The outcry came about in the wake of international efforts to improve bank regulations by the Basel Committee on Banking Supervision. These regulations are meant to prevent bank failures, accumulation of bad assets and systemic risks to the financial system like the ones that led to the 2008 global recession.
India too is implementing what are known as Basel III norms to maintain balance sheets, the RBI issued guidelines to that effect in 2012. The norms are to be implemented by 2018. Then the Asset Quality Review commenced in 2015. It is now in the public sphere that numerous large projects had run aground, leading to stressed assets/ loans of banks and resulting in NPAs (Non Performing Assets) i.e., loans that cannot be recovered at all. The RBI held out deadlines to clean up balance sheets, nudged banks to treat some troubled loan accounts as bad and make provisions for them. According to reports, provisions against bad loans surged by 90% and aggregate net profit of the 39 listed banks fell 98% to Rs. 307 crore in the December quarter from Rs.16,806 crore in the year earlier. Twenty four public sector banks have reported an aggregate loss of Rs. 10,911 crore in the December quarter compared to a profit of Rs. 6,970.8 crore in the year-ago quarter. Gross NPAs of 39 listed banks surged to Rs. 4.38 trillion for the quarter ended 31 December.
Banks have loaned money to poor performing sectors like power, aviation, highways, micro-finance institutions, ports and telecommunication. Lending to small and medium enterprises (SMEs) and agriculture too has led to high levels of stress assets. Banks, it appears, were loaning money to corporations without diligent scrutiny of proposals and performances. Sluggish growth of the economy, domestic and global, does not offer any hope of turn around even if asset restructuring is extended.
In the wake of the public indignation that big business has made off with public money, the Supreme Court (while expressing serious concern over the rise in bad loans), has directed the Reserve Bank of India (RBI) to provide a list of companies that have defaulted on bank loans of over Rs. 500 crore. The apex court also asked the Reserve Bank of India (RBI) to provide a list of companies whose loans have been restructured under corporate debt restructuring schemes within six weeks.
There seems to have been desperate attempts to keep up economic growth by pumping the economy with bank credit (particularly between 2011-13). Bad loans of 39 major listed banks increased steadily from 2% of outstanding credit to about 5%. Since credit supply was booming, the absolute amount of NPAs became Rs. 3,41,641 crores by the end of 2015. This is about as much as the entire expenditure estimates of the union government of India’s Budget 2016 to fuel growth of some select companies. How will this cost of growth be accounted for?
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Anuradha Kalhan
Anuradha Kalhan is an independent researcher. She was earlier a Fellow at NMML, Teen Murti.[/column]