Saturday, June 6, 2020
Home News Reports NPA crisis could be Congress led UPA's biggest scam.

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

Also Read

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

Trending now

A tale of 2 contradictory orders: How Arvind Kejriwal govt made the Coronavirus fight impossible for doctors at Ganga Ram Hospital

Reportedly, Sir Ganga Ram Hospital would test 150-170 Coronavirus samples and conduct 30-40 surgeries per day, prior to the government order.

Celebrities have commercialised dissent in India, they say ‘BlackLivesMatter’ while endorsing racist fairness creams: Kangana Ranaut

Kangana Ranaut slams celebrities for speaking on 'Black Lives Matter' while staying silent on incidents like Palghar lynching

No, Jyotiraditya Scindia has not ‘removed BJP’ from his Twitter bio: Here is the truth

Media claimed that Jyotiraditya Scindia, the former Congress leader who is now with the BJP, had removed his association with the BJP from his Twitter bio.

How AltNews ‘fact-checked’ the pregnant elephant story to shield Muslim suspects, quietly changed copy but continued to peddle agenda

AltNews tried to 'fact-check' the brutal incident that resulted in the death of an elephant in Kerala with the aim to shield the Muslim suspects

US filmmaker says former Pakistan minister Rehman Malik raped her, former PM Yousaf Raza Gilani manhandled her: Watch

Cynthia D. Ritchie said that sexual assault against her by Senator Rehman Malik had happened occurred at Interior Minister's residence in 2011

Congress mouthpiece says ‘Muslims have sat quiet and subdued’: Here is how they are wrong and how their dog-whistling might not work

National Herald published an article that said that the first year of Modi Sarkar 2.0 has been the 'worst possible year' for Muslims in the country.

Recently Popular

Times of India journalist Samina Shaikh tries to shame Hindus over the killing of pregnant elephant in Kerala

In Hinduism, Lord Ganesha has the head of an elephant and elephants are also considered holy.

“Your mother was Hindu, how can we trust you?” Read shocking revelations by the niece of Nawazuddin Siddiqui

Nawazuddin Siddiqui and his family refused to believe the niece's allegations stating that they cannot trust the daughter of a Hindu.

Himachal Pradesh: After Kerala pregnant elephant death case, video of a pregnant cow injured due to cracker explosion in mouth surfaces online

In the video shared online, it can be seen that the mouth of the pregnant cow has been injured very badly with a lot of blood oozing out of her mouth

Woman ‘protestor’ poops on an overturned police car in middle of riots in America. Watch the video (or maybe not)

A woman was seen defecating on a damaged police car in USA, an act video recorded and photographed by onlookers

After trying to rope in 2nd, 3rd-year MBBS students to manage Coronavirus patients, Maharashtra govt to punish medical interns if they get coronavirus

Medical interns in Maharashtra will be liable to repeat the internship for the quarantine period if they are infected with Coronavirus

GoAir fires trainee officer Asif Khan after screenshots of his Hinduphobic comment went viral on social media

GoAir has terminated the employment of one Asif Khan after his anti-Hindu offensive comments on social media went viral.

Congress leader Archana Dalmia passes off an old image from 2017 as recent one, deletes it after being caught

Archana Dalmia claimed that the woman had died by the railway tracks of the MP's Damoh and she was spotted by people in the state

Coronavirus: Mild and asymptomatic cases do not need hospitalization, says Delhi Health department

Citing union health ministry guidelines, Delhi govt said that Coronavirus patients with mild and no symptoms do not need hospitalization

Every Sikh wants Khalistan, says Akal Takht Jathedar Giani Harpreet Singh on 36th anniversary of Operation Bluestar

The controversial remarks came from the Akal Takht chief on the occasion of 36th anniversary of the Operation Blue Star

A tale of 2 contradictory orders: How Arvind Kejriwal govt made the Coronavirus fight impossible for doctors at Ganga Ram Hospital

Reportedly, Sir Ganga Ram Hospital would test 150-170 Coronavirus samples and conduct 30-40 surgeries per day, prior to the government order.

Communist Party is ‘both a court and police station’: Kerala women’s panel chief MC Josephine courts controversy

State Women’s Commission chairperson MC Josephine kicked up a controversy after she claimed that her party Communist Party of India (Marxist) was both a court and a police station

Celebrities have commercialised dissent in India, they say ‘BlackLivesMatter’ while endorsing racist fairness creams: Kangana Ranaut

Kangana Ranaut slams celebrities for speaking on 'Black Lives Matter' while staying silent on incidents like Palghar lynching

Pakistan: 8-year-old maid Zohra Shah beaten to death after she accidentally let two parrots escape from cage

When the parrots flew away, a miffed Siddiqui and his wife Umm Kulsoom beat the victim 8-year-old Zohra Shahblack and blue, killing her

News of Chhota Bheem ditching Chutki to marry princess Indumati is fake, clarifies maker of animated show after netizens outrage over ‘betrayal’ by Bheem

Netizens launch #JusticeForChutki campaign after news spread that Chhota Bheem is ditching best friend Chutki to marry princess Indumati

No, Jyotiraditya Scindia has not ‘removed BJP’ from his Twitter bio: Here is the truth

Media claimed that Jyotiraditya Scindia, the former Congress leader who is now with the BJP, had removed his association with the BJP from his Twitter bio.

“Yoga has no place in the life of Christians,” Greek Orthodox Church issues diktat against yoga to its followers

Greek Orthodox Church said yoga has no place in the life of Christians after Greek media recommended Yoga during lockdown

Connect with us

229,698FansLike
364,024FollowersFollow
246,000SubscribersSubscribe