India’s Non-performing Assets (NPAs) stands at a whopping 9.9 per cent. It has the second highest ratio of NPAs among the major economies of the world. Only Italy, with 16.4 per cent NPAs has more stressed assets. China who we see as our economic competitor has only 1.7 per cent NPAs according to the IMF. So why is India plagued with such a huge liability? Is it the system or the politics of it?

INDIA IS REELING under an NPA burden which is growing by leaps and bounds and is at present at a staggering Rs 8 lakh crores. It is currently ranked fifth on the list of countries which have the highest Non-Performing Assets (NPAs) and is also topping the BRICS nations. The government has tried to stem the crisis by infusing about Rs 2.11 lakh crore in the public sector banks with an additional Rs 1.35 lakh crore by way of recapitalization bonds.

India is however topped by the countries known as PIIGS (Portugal, Italy, Ireland, Greece and Spain), excluding Spain that is ranked at the 7th spot below India and Russia.

The government needs to take certain reforms to make banks more responsive by boosting bank boards, address the NPA issue and other HR related issues. Experts feel that mere capital infusion in banks will not be enough unless backed by a whole lot of reforms that leads to responsive banking in the future.

It is easy to blame the preceding governments for the problem and even Prime Minister Narendra Modi earlier blamed the UPA government for the humungous bad loans burdening the banking system by claiming that politicians put pressure on banks to forward loans amounting to thousands of crore of rupees to chosen industrialists resulting in a scam that surpassed the 2G, coal and Commonwealth Games scams. The Modi government has tried to push for reforms by reworking economic structures by introducing drastic steps such as demonetization, Goods and Service Tax (GST) and amendments to the Insolvency and Bankruptcy Code. In fact, these steps found praise from the top rating agencies who hailed the Modi government for introducing the insolvency and bankruptcy code along with the NPA resolution framework to tackle the burgeoning bad loans that the PSU banks are stuck with.

THE GOVERNMENT NEEDS TO TAKE CERTAIN REFORMS TO MAKE BANKS MORE RESPONSIVE BY BOOSTING BANK BOARDS, ADDRESS THE NPA ISSUE AND OTHER HR RELATED ISSUES. EXPERTS FEEL THAT MERE CAPITAL INFUSION IN BANKS WILL NOT BE ENOUGH UNLESS BACKED BY A WHOLE LOT OF REFORMS THAT LEADS TO RESPONSIVE BANKING IN THE FUTURE.

IN MOST GOVERNMENT OFFICES, BABUS ARE BUSY PREPARING CABINET NOTES OR ANSWERS TO PARLIAMENT QUESTIONS ON THE NEW POLICIES. THESE ARE MERE EXERCISES TO FIND WAYS TO DODGE ANY ISSUE OF UNCERTAINTY ARISING FROM THE POLICIES OR ANY QUESTION ON THE TRASHING OF OLD POLICIES THAT MAY SURFACE

But despite all these radical moves there seem to be some disconnect between policy and action. There has seldom been any review of how government policies have changed in the interim between the time a loan is under consideration and the time after disbursal which could lead to the chances of repayment turning detriment or the debtor’s ability to repay.

It is, therefore, ironic to see governments castigate corporates and banks for NPAs or stressed loans. Every reason, from “liberal or lax” appraisal of credit-worthiness of projects/promoters to ever-greening of loans by banks, is cited to thump borrowers and lenders, but hardly any attention is given to government policies.

This is not to imply that there are no black-sheep businessmen and bankers — but they number a few, and certainly do not make up the entire gamut of borrowers and assessment personnel in banks as is often made out to be.

Policy makers are always trying to find ways to protect themselves from blame and culpability and hence work out new policies with high moral and ethical consideration but little chance of how it works on the ground. Promoters of failed projects cannot bid for their sick units in case these are brought under the insolvency resolution mechanism under the Insolvency and Bankruptcy Code.

Thus, policy-makers become savioursaints, and all others are painted as villains. The sad part is the new decree could breed a flock of both domestic and foreign (through offshore associates) who will bid discreetly for the projects, and many of these could eventually end up being controlled by the original promoter(s). Once the lid is blown off this, it will lead to a fresh round of investigations. Instead of insolvency and bankruptcy resolution, we would have a fresh load of muck.

Authorities need to also investigate how their own policy decisions — modified and changed from time to time — have led to NPAs, affecting the industry, banks and other financial institutions.

Has there been any quantification of the shock all enterprises — small, medium and corporate — suffered because of demonetisation? Are not the GST-bones still stuck in the throat of many businesses? Will that not create more stress for industry and banking?

Then there are instances where the government suddenly decides to induct or push new technology — these are, no doubt, progressive decisions — like in the case of electric vehicles. But where will all the investment in the oil sector go? Should new electric vehicle investments be made at a measured pace or in top gear?

In some cases, the government opposed the induction of new technology. Take the case of GM seeds — we have refrained from quick adoption. Had GM soy seeds been introduced, it may have led to soy and soy-oil prices coming down. This may not have been palatable to farmers and the mills, but the consumer could have benefited. Also, the import burden on the account of soy and soy-oil could have come down. In 2008, the UPA government banned the export of nonbasmati rice as a knee-jerk reaction that had no justification or rationale. There was no scarcity of rice within the country.

More than Rs 1,000 crore had been lent by banks. Following the ban, the promoters and banks that had lent to them were in tears. That is until the ban was lifted in September 2011. No one will point fingers at the government for its rank ad-hoc-ism. For the last seven years, rice has been the only viable export as far as agricommodities are concerned.

One can go on with many instances of such shocks delivered by the government. Government agencies procured 2 million tonnes of pulses last year, the bulk of which remains unsold. The National Food Security Act (NFSA) was created and, again, vast reserves of grains were built up. But now there is a go-slow on NFSA, in action if not in principle or policy. No one is made accountable for decisions that were more political than based on economic rationale. With the money of taxpayers sunk into implementing such decisions, these decisions are just as toxic as NPAs.

In most government offices, babus are busy preparing Cabinet notes or answers to Parliament questions on the new policies. These are mere exercises to find ways to dodge any issue of uncertainty arising from the policies or any question on the trashing of old policies that may surface.

Governments cannot shrug blame and point fingers at others by citing rapid technological change responsible for businesses rising or falling leading to considerable hurt to the financial sector. The government can hardly shut eye and leave the twin balance-sheet problem to the collusion between unscrupulous borrowers and corrupt officials among the lending banks.