Talking Point: New ordinance empowers RBI to end crony capitalism

The Indian Banking system faces a $180 billion or Rs 12,00,000 crores bad debt problem. Of this, the top 10 corporate groups owe over Rs 5,00,000 crores to banks. These include the Anil Ambani led Reliance Group, GVK, GMR, Jaypee, Adani, Lanco, Essar, Vedanta, JSW and Videocon. 

If the banks can fix the Top 10 groups, that would be a huge burden off the tax payers. Faced with a possible massive re-capitalisation of banks and impending investment in to infrastructure, the Government is not passing on the benefits of falling oil prices to the public. 

When the world crude oil price was $100+ in 2011, petrol prices in India were Rs 68 per litre. The price of oil is now $50/barrel and petrol price is still Rs 68/litre. The government is not passing on the benefits to us. 

When IDBI was a Development Financial Institution, it had over 33% bad loans and these date back to the 1970s/80s/90s. These were loans given to corporate houses close to the party in power. 

The same was with various other banks and Financial Institutions. The bad debts have been built over the years and the tax payers have been footing the bill quietly. Between 1991 and 1999, the Indian Tax Payers paid Rs 16,000 cr to recapitalise banks. 

The Centre has just given the powers to the RBI to amend the Banking Regulation Act, set up panels to look at stressed assets, reduce the risk of anti-graft probes and run after these defaulters. It will also help banks take write offs and, therefore, ask for legitimate re-capitalisation. 

The chase given to Vijay Mallya and his Kingfisher Group shows the seriousness of the RBI and the Centre to bring to book these defaulters. It has sent a shiver down the spine of various top corporate defaulters as they are queuing up in the market to sell some of their assets to start repaying the loans. An example is - Anil Ambani’s Reliance trying to self off towers of Reliance Telecom and some assets in the Electricity Generation business. 

The Government aims to send a strong signal to corporate houses. Compared to Reliance which owes close to Rs 1,25,000 crores, the Rs 9,000 crores of Kingfisher pales in to insignificance. 

As bank after bank disclose their Non-performing Assets (NPAs), more of them now seem willing to bite the bullet. Massive under-reporting of NPAs is still prevalent – Axis Bank and Yes Bank have already been picked up for under-reporting. 

On the other hand, banks have also been willing to classify large corporate borrowers as NPAs …Dena Bank has classified Videocon as a NPA. This has been done for the quarter ended March 31, 2017 and became news on May 10 2017.