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Banking Bubble Bursts

As an ex-bank officer, I feel that frequent transfer of bank managers is also responsible for the poor realisation of debts. After one manager, who sanctioned the loan is transferred, his successor does not take steps to realise the amount on due date. Instead, they try to play the blame game as BJP and Congress are now playing. If the new manager tries the tricks up his sleeves, the defaulter uses his clout at the head office, to sabotage the effort. In a vast country or sub-continent like ours, there is too much over-centralisation. Why PMO should be concerned with NPA, when there are Finance Ministry or Reserve Bank, SEBI and a host of Non-Performing Agencies of the government of India in case of bad loans and advances.

In the present position, we would like to see that the government bailout few thousand crores worth of small MUDRA loans, rather than wait and ultimately write off the fat loans of industrialists after a long wait. The RBI governor must find ways and means to stop lakhs of black money, which is moving out of circulation instead of talk on farm loan wavier as a cause for reducing the flow of credit. It is time to act swiftly rather than simply wasting time on discussion, allegation and counter-allegation alone. Raghuram Rajan, Former RBI Head confess that the Rupee value degradation was due to the bad loan which was given during the starting phase of 2006 and further.  It is all about decision-making and government should take corrective action. But who will correct the wrongdoings of the UPA government?

Corruption, dishonesty and incompetence supersede all the reasons stated by Mr. Rajan, and it is a pity that he has not chosen to be candid. While the BJP said that the UPA’s mismanagement was the reason for the NPAs, the Congress alleged that despite a warning from Rajan, the Centre failed to take any action. The need of the hour is that the banks, former PM, former FM to react and reveal the facts of the NPA muddle. People must know what went wrong, who caused this mess, whether it is curable, whether the credibility of banks can be restored and regain peoples faith in the system. A holistic approach to the fact of the matter is of prime importance. Bad loans and NPAs are nowadays a big challenge for India or can be in future. This is due to lack of credit monitoring while providing a loan.

It is high time that the loan waiver should be discouraged. Any incentive should be given in the form of subsidy or reward or capacity development fund, but not force another commercial organisation like a bank or electricity board. It’s unethical and unfair and hiding revenue deficit. It’s a good time for NGOs like ‘Common Cause’ Election Commission and Supreme Court to take up this ‘populist’ promises and action under electoral laws. State governments are the major culprits in this issue. Every year we see farm loans being waived at the cost of taxpayers’ money. It is time to intervene and put a ban on loan waivers. Discretionary powers of politicians, on public spending should be restricted and regulated. Public funds should be used prudently and subject to regular strict audit. All organisations getting income tax rebates should be under RTI. CAG should have the power to audit public funding. CAG should be strengthened and modernised.

The nation has created on the one end an entitlement mentality through doles for votes including waiver of loans, while on the other end, a license to cheat with loans of thousands of crores which to anyone would appear to have been given only for questionable consideration to bankers and politicians. Small loans are worth the risk and can help many small businessmen and those who want to start a business, unlike NPAs benefit only the likes the richest. Power corrupts and absolute power corrupts absolutely as far as Banking loans are concerned. These bad loans and NPAs are making the rich richer and the poor remains the poorer.


(The views expressed by the author in the article are his/her own.)
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