Wednesday, October 28, 2020
Home News Reports NPA crisis could be Congress led UPA's biggest scam.

NPA crisis could be Congress led UPA’s biggest scam.

It was generally believed that the 2G scam which involved a presumptive loss of 1.76 lakh crore was the biggest scam of the UPA regime that ruled India between 2004 and 2014. However the biggest crisis facing Indian economy today, i.e. that of NPA (non performing assets) could been one of the biggest scams of UPA.

The corrective measures taken over a period of past three years have not only brought more transparency in the system, but also unravelled the scale of mismanagement and scam in public sector banks under Congress led UPA.

What is a non performing asset ?

Definition of non performing asset (NPA) is : a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

A loan can turn into a NPA if the amount taken by the borrower fails to generate any money from productive activities. This could be either due to failure of borrower or roadblocks to the project for which the loan is taken. For example if a highway builder is unable to acquire land from a private person in the path of the road, he will not be able to build the road in time. Thus, the loan will turn into a NPA.

The making of NPA scam

One might ask to how the NPA ‘scam’ was allowed to occur. The 2G scam was based on ‘presumptive loss’ theory, i.e. possible loss to the exchequer due to a faulty process. The theory had been validated post facto as the money raked in through transparent bidding was much higher than the earlier process.

The NPA scam is far more sophisticated and harder to detect in the eyes of a common man. It relies on three important pillars.

  • Reckless lending without accounting for risks in a given project or overall economy. (Such a system is allowed to take shape when banks are forced to lend to cronies of the regime)
  • Ever-greening of loans, i.e. postponing the due date of payment everytime the borrower fails to pay. This can also be done by clever accounting techniques.
  • Lack of effective legal framework to ensure that NPAs don’t affect banks perpetually. This forces banks to resort to ever-greening of loans

While the first part of the scam is difficult to prove , the other two points in the scam are straightforward affairs. A RBI report titled ‘Re-emerging Stress in the Asset Quality of Indian Banks: Macro-Financial Linkages’ published in February 2014 captures the growth of NPAs under the Congress led UPA regime.

The table from the report is shown below :

Note : Gross Advances mean all loans that have been given out by the banks that are not repaid at that instance of time.

If one sees the steady growth of NPAs in absolute terms, it shows that the figure nearly trebled between 2004 and 2013 (63,538 crores to 183,854 crores) . However , in percentage terms it remained low because the overall amount lent (i.e. gross advances) by banks rose drastically. It must also be noted from the table that NPAs rose steadily after 2006 and then drastically in the 2012 and 2013 by 45.7% and 34.1% respectively. This trend is visible in the graph below.

The delay in growth of NPAs vis a vis the growth of loans is due to the fact almost no loans will turn into NPAs in the first few years. Unless there is some major event, loans are generally serviced well in the initial term, and later the loan quality drops and it turns into an NPA. This is also the time by when any efforts of evergreening have reached their limits.

The report says :

Third Phase: 2009 to 2012: During this period, growth in credit as well as NPAs slowed down in 2010. However, by end-March 2012, there was a sharp contrast in the movement of both, with credit growth witnessing a sharp contraction and growth in NPAs trending up. NPAs grew at around 46 per cent as at end March 2012, far outpacing credit growth of around 17 per cent. This widening divergence in the growth of credit and NPAs has implications for the asset quality in the near term. The decline in credit growth during this period could be attributed to the general economic slowdown that set in as a result of combination of domestic and global factors.

At the same time it is important to note the growth of debt in the top 10 firms of India. It must be noted that the debt of stressed firms rose from 1,372 crores to 6.689 crores in a matter of 6 years.

Source : Economic Survey 2016- 17 [ pdf ]

Thus, by the end of the Congress led UPA regime, growth had slowed down and NPAs had risen drastically. In addition to this, many NPAs were hidden under the carpet. This was bad for Indian economy in two ways.

Banks are essential for growth as they fund new ventures. If they are in bad health , economy will not get credit for new ventures ( i.e. growth ) . Secondly, if NPAs are high banks will face losses and the government will have to spend money to bring them back to track. The drop in lending activities of sick public sector banks is visible below is evident 

Source Economic Survey 2016-17 Part -2 [ pdf ]

Asset quality review unravels more NPAs 

RBI conducted asset quality review i.e. scrutiny of loans given out by banks from 2015 onwards to uncover NPAs. This revealed that the banks had been hiding NPAs in excess of what appeared in the RBI report and data presented above. In August 2017, the government also passed an amendment to Banking Regulation Act in order to empower RBI in managing the NPA problem. After this move, more NPAs are being uncovered.

On December 6. 2017 , NS Vishwanathan told the press that the banks had not applied the rules correctly to identify these NPAs . He said : ‘We’ve assessed banks’ classification based on the rules they are today and we’ve found that in some cases, they have not applied those rules correctly.’ 

As a result of these exercises, there has been slowdown in growth and businesses. NPAs have risen from 3.4% in 2013 to 9.6% in August 2017. They are expected to reach 10.6% by March 2018. Measures to bring the banks back to good health have been taken by the government in the meantime. The insolvency and bankruptcy code will provide for a legal and transparent way to clear off the NPA. 2.11 lakh recapitalisation plan will bring in fresh funds for the banks to lend, thereby putting the economy back on the growth path.

NPA scam could be bigger than 2G scam

Reports suggest that the value of NPAs could be around Rs 8 lakh crores. Compare this to the value of NPA in 2013 ( i.e Rs 1.83 lakh crore). It is widely accepted that the bulk of NPAs are a part of the UPA legacy. The finance minister had reiterated this fact in Parliament earlier in the year. Thus, the difference between current NPA level and that in 2013 that could be attributed to UPA will run into lakhs of crores.

This time it is not a ‘presumptive loss.’ Only a detailed study by RBI in this regard will bring the actual figures to light. Thus, it can be said that the NPA scam is much bigger than 2G scam.

  Support Us  

Whether NDTV or 'The Wire', they never have to worry about funds. In name of saving democracy, they get money from various sources. We need your support to fight them. Please contribute whatever you can afford

Related Articles

Trending now

Touseef’s mother called her and asked her to convert to Islam, Nikita Tomar’s family reveals

Tauseef's mother reportedly called Nikita several times asking her to convert to Islam

Delhi resident Sushil slaughtered by knife from meat shop over petty quarrel, four including prime accused Chand arrested

Shahnawaz, Aafaq, Chand and Haseen stab Sushil and his two brothers in north-west Delhi.

Tamil Nadu: Thol Thirumavalavan’s VCK members stab an office-bearer of Hindu organisation Indu Makkal Katchi

Manikandan, who is critical after sustaining injuries, has been admitted to the Dindigul Government Hospital and is currently undergoing intensive treatment.

Deepika Padukone’s manager Karishma Prakash goes untraceable after NCB raids her house, seizes drugs including charas

The NCB carried out raids at Karishma’s Versova residence and recovered 1.7 grams of charas and at least 2 bottles of CBD oil.

Watch: Moment when firing broke out and an eyewitness who narrates exactly what happened

The horrific violence that broke out during Durga Visarjan in Munger, Bihar last night has left people wondering as to what transpired that led to the death of an 18-year old boy and left many injured

ABP quotes uncle of murderer Tauseef to whitewash the religious angle in the heinous murder of Nikita Tomar

Javed Ahmed out rightly denied any angle of religious conversion in the Nikita Tomar murder and said that he respected all religions.

Recently Popular

Faridabad: A month after college student Nikita files molestation complaint against Taufeeq, he shoots her dead

As per reports, the accused initially wanted to abduct the victim but killed her when she resisted him.

Nikita Tomar murder: Taufeeq was pressurising her to embrace Islam family alleges

On Monday, 21-year-old Nikita Tomar was shot to death in broad daylight outside the Aggarwal college in Ballabgarh, Faridabad

Nikita Tomar murder: Main accused Tauseef belongs to a family of influential Congress politicians from Nuh in Haryana

The prime accused Tauseef's grandfather, uncles and cousin brothers are all infuential Congress politicians from Haryana's Nuh

YouTuber Lakshay Chaudhary levels serious allegations of fraud against Gaurav Wasan of Swad Official whose video on ‘Baba ka Dhaba’ had gone viral

Gaurav Wasan of Swad Official had uploaded a video about the financial difficulties faced by the elderly couple of 'Baba ka Dhaba'.

18-year-old dead as police open fire at Durga Puja Visarjan procession in Munger, Bihar: Here is everything you need to know

An 18-year-old youth has reportedly been killed and several others injured in the firing that took place on the intervening night of Monday and Tuesday in Munger, Bihar

Two Hindu families see the death of the child, one because she dared to refuse Islam, one, because he wanted to bid goodbye to...

By any measure, the Faridabad incident and the Munger shooting are indeed absolutely shocking.
- Advertisement -

Touseef’s mother called her and asked her to convert to Islam, Nikita Tomar’s family reveals

Tauseef's mother reportedly called Nikita several times asking her to convert to Islam

Delhi resident Sushil slaughtered by knife from meat shop over petty quarrel, four including prime accused Chand arrested

Shahnawaz, Aafaq, Chand and Haseen stab Sushil and his two brothers in north-west Delhi.

Tamil Nadu: Thol Thirumavalavan’s VCK members stab an office-bearer of Hindu organisation Indu Makkal Katchi

Manikandan, who is critical after sustaining injuries, has been admitted to the Dindigul Government Hospital and is currently undergoing intensive treatment.

Deepika Padukone’s manager Karishma Prakash goes untraceable after NCB raids her house, seizes drugs including charas

The NCB carried out raids at Karishma’s Versova residence and recovered 1.7 grams of charas and at least 2 bottles of CBD oil.

Watch: Moment when firing broke out and an eyewitness who narrates exactly what happened

The horrific violence that broke out during Durga Visarjan in Munger, Bihar last night has left people wondering as to what transpired that led to the death of an 18-year old boy and left many injured

ABP quotes uncle of murderer Tauseef to whitewash the religious angle in the heinous murder of Nikita Tomar

Javed Ahmed out rightly denied any angle of religious conversion in the Nikita Tomar murder and said that he respected all religions.

Karan Johar’s Dharma Productions receives show cause notice for dumping garbage, bio-medical waste used during a film shoot in Goa on roadside

Goan activists threatened of taking Dharma Productions and Karan johar to court for breaking the laws of the land.

Weeks after being targeted by opposition parties and media for allegedly favouring BJP, Ankhi Das quits Facebook

Ankhi Das was mired in controversy lately after a WSJ article accused Facebook India of showing bias towards BJP.

Nikita Tomar murder: Main accused Tauseef belongs to a family of influential Congress politicians from Nuh in Haryana

The prime accused Tauseef's grandfather, uncles and cousin brothers are all infuential Congress politicians from Haryana's Nuh

While Munger video shows devotees protecting Maa Durga’s Murti in silence as the police unleashed blows, SP claims they shot their own

Violence erupted in Bihar’s Munger as police resorted to brute force against devotees participating in Durga Visarjan.

Connect with us

245,563FansLike
469,849FollowersFollow
19,400SubscribersSubscribe