The Hindu Business Line : The millstone of bad loans weigheth

ABOUT two years back, the former Finance Minister, Mr Jaswant Singh, had described the non-performing assets of some Rs 83,000 crore in banks as "loot, and not debt", while replying to a query in the Rajya Sabha.

Though the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) law helps banks and FIs recover NPA, it is often given the short-shrift.

A glaring example of bypassing SARFAESI was the suppression of the waiver/concessions of around Rs 2,300 crore by IDBI favouring Indian Charge Chrome Ltd (ICCL). The write-off amounted to 16.5 per cent of IDBI's aggregate NPA of Rs 16,000 crore.

But IDBI's huge loss was attributed mainly to bad investments in ventures and debenture papers.IDBI's annual report for 2002-03 makes no mention of this giveaway.

It merely talks of having initiated steps for recovery from non-performing assets. According to the then IDBI Chairman, Mr P. P. Vora, 41 borrowers with an aggregate principal outstanding of Rs 1,459 crore were served notice under SARFAESI. "Your bank conveyed its consent to the lead institution for taking action under the Act in respect of another 29 borrowers, with principal outstanding amounting to Rs 882 crore," he added. But there was deliberate silence about the Rs 2,300 crore waiver that harmed the bank immensely.

In the ICCL annual report for 1996-97, the auditors categorised the company as "a sick industrial company within the meaning of clause (O) of sub-section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. Again, during the five years ended 2002-03, ICCL's losses crossed Rs 2,600 crore, which was more than 45 times its paid-up capital.

If it is strange why the company was not referred to the BIFR earlier, it is because ICCL obtained legal opinion that the company "falls outside the purview" of SICA and, hence, reference to the BIFR was not a must.

There was no reason at all for IDBI to accept guarantee for Rs 297 crore from ICCL associate Indian Metal and Ferro Alloys (IMFA), whose net worth was one-thirteenth of this sum in 2000-01. According to IMFA's books of accounts, the total corporate guarantee for ICCL was Rs 2,915 crore on March 31, 2003 — 124 times IMFA's net worth.

During the recasting of IDBI — by way of merger with its subsidiary IDBI Bank — in August 2003, Mr Vora had said that this would reduce the costs of deposits and facilitate various diversification schemes.

But the fact is, the merger was a mandatory compliance of an RBI directive. It seems remote that costs would be reduced when banks deviate from the norms of good business.

The legacy of T. T. Krishnamachari, undoubtedly one of the most innovative of finance ministers, lingers in the headquarters of most of the financial institutions and major banks in Mumbai, including the IDBI.

While introducing the Bill for the formation of IDBI 40 years back, his vision of the new FI "as a central co-coordinating agency", effectively dealing with various "problems or questions relating to long- and medium-term financing of industry and to being in a position to adopt and enforce a system of priorities", has been belied.

Between 1998-99 and 2002-03, IDBI's assets fell from Rs 69,143 crore to Rs 63,115 crore. Its gross NPAs grew nearly two-fold from Rs 8,236 crore in 1999-2000 to Rs 16,006 crore in 2002-03. And this unabated rise of NPAs has happened when public sector banks witnessed negative NPA growth with better monitoring.

(The author is a Kolkata-based freelance writer.)

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