'It is not only reckless, but also corrupt lending'

'It is not only reckless, but also corrupt lending'

'It is not only reckless, but also corrupt lending'

Prashant Bhushan

is a renowned lawyer, activist and politician. As an anti-corruption crusader, he is noted for use of public interest litigation (PIL) to support a number of causes related to corruption. He was also instrumental in Supreme Court’s ruling on February 16 , wherein the court asked the Reserve Bank of India to provide a list of companies which have defaulted on bank loans worth over Rs 500 crore.

In an interview with Furquan Moharkan of Deccan Herald , Bhushan says that there is no justification for the government to hide the list of defaulters. He also added that crony capitalism has added to non-performing assets of the banks. He also emphasised on the need of forming an independent credit appraisal committee, which would be common for all PSU banks and would examine the credit worthiness of loan proposals.

Why is it that PSU banks are showing such a decline in profits?

That is because most of them have been indulging in the reckless lending to companies, which have a poor track record for repaying loans and for the projects for which it is not prudent to lend.

So, as a result, a lot of these loans have defaulted and are showing up as non-performing assets (NPA), corporate debt restructuring and the debt that is now thought to be written off.

Have the rising NPAs and subsequent write-off impacted it? If so, to what extend?

So far the banks have been hiding the fact that the loans they have been given were not coming back. A lot of the loans had defaulted.

But now, it is no longer possible to continue hiding it. Earlier, it was done by what is called corporate debt restructuring. And therefore, in their books of accounts, it was not being shown as the money which had disappeared.

It was still being shown as the money which will be recovered in the future. You see, you can go on doing this window dressing only for some time. You can’t go on doing this forever.

What is your opinion about last week’s ruling on NPAs by the Supreme Court?

Well, there was absolutely no justification for the government wanting to the information about these companies, who had defaulted on the loans. But they were still doing that. Therefore, it is really good that the Supreme Court has sought this information.

We hope that this information will be made public, because it is only when the people come to know what kind of corporates are given loans, corporates who have poor track record or corporates who have bogus projects where there is no possibility of loans being returned as those projects which don’t have any hope of making any profits, it is only then that this kind of reckless lending will stop.

It is not only reckless, but also corrupt lending. Lot of loan defaults have happened because of corruption too.

Do you think coercion and corruption among the board of directors has impacted deteriorating NPAs?

Yes, of course! There is clearly a lot of corruption in the grant of loans. There is political pressure as well as corruption.

See what is happening is that the government appoints politically loyal people on the board, or as Chairman or Managing Director, and thereafter various politicians put pressure on these people to grant loans to their crony capitalists, even though they don’t deserve any loans.

There is also lot of what is called forum shopping going on. In it people seek loan from banks, if the board there is honest and they decline that loan, they go to some other bank.

You raised an important point about crony capitalism prevailing in loan disbursement. How far do you think it has impacted deteriorating NPAs?

See one example is good enough to prove it. Recently, Mr Modi (Prime Minister Narendra Modi) went to Australia with Adani and Chairman of State Bank of India (SBI), Arundhati Bhattacharya and made State Bank promise Rs 6,000 crore loan to Adani for a project in Australia, on which the Australian banks had declined to grant the loan, on the grounds that there was no environmental clearance. It is a clear case of crony capitalism.

Are there cases where senior officials use their clout to write off NPAs of influential business entities?

Yes, there have been many such one-time time settlements, where you give up your claim of interest and a portion of principle also, and settle for an amount that is a small percentage of the outstanding amount.

What can be done to improve the situation on this front?

The need for more transparency is one-way. The list of all the defaulters should be made public.

Whenever a company seeks a loan, there needs to be an independent credit appraisal committee, which would be common for all PSU banks and would examine the credit worthiness of the proposal.

After the appraisal, the report should be made public. This needs to be done immediately.