Banks' NPAs touch Rs. 72,000 cr.

By Alok Mukherjee

NEW DELHI, JULY 28. With the UTI scam coming into sharp political focus, there is rising concern in the Union Finance Ministry about other financial institutions and public sector banks which are likely to suffer substantial losses.

Though these are not necessarily clear-cut scams, the latest information with the Ministry is that the gross non- performing assets (NPAs or simply bad loans) of public sector banks and all- India financial institutions had reached a whopping Rs. 71,928 crores by the end of March. Desperate attempts to recover the loans through a settlement process have not yielded any significant results, despite the chief executives and the board of Directors of the institutions being provided considerable flexibility on the issue.

In most cases, the defaulting party is in no position to pay up and the Union Finance Minister, Mr. Yashwant Sinha, has finally asked the institution chiefs to see whether the big borrowers could be sent to jail for non-payment.

The Ministry is, however, aware that sending the defaulting parties to jail could be a cumbersome process and even then, there is no guarantee that the money can be recovered.

According to official definition, a loan becomes a non-performing asset when the interest on the loan is not paid for two quarters and the principal installment not paid for a year. After two years, the non-performing asset gets into the `doubtful category and thereafter, it becomes an `ethical error.'

The solution with the banks and financial institutions is to make provisions for the lost asset from the profits of the organisation. But, for the Ministry, the problem is that with the outstanding NPAs being in the range of Rs. 72,000 crores, the profits of the organisations would simply not be adequate to even cover a proportion of the bad loans.

Of additional concern to the Ministry is the fact that some of the institutions are now blaming the poor management of the economy for the mounting NPAs. Recently, in response to queries from a parliamentary committee, the Industrial Development Bank of India (IDBI), in a written reply, said the growth in the industrial sector had a positive correlation with the quality of asset portfolio of the IDBI. ``One of the major causes of NPAs is the general recession in the demand for industrial products. The portfolio of IDBI in the last few years has been affected by recessionary conditions in certain industry sectors resulting from excess capacity creation, increased competition from imports (due to lowering of tariffs) and slow-down in exports following the South East Asian crisis.''

Faced with the daunting task of recovering the huge amount of public money tied up with sick industrial units, the Government is now contemplating some legislative changes to make the process of winding up of sick companies quicker and other accompanying measures to rehabilitate or revive them.

Incidentally, the parliamentary committee which went into the working of the IDBI has recommended that the secrecy clause which prohibits financial institutions from revealing the names of the defaulting companies should be scrapped.

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