India’s Increasing NPA: Poor Banks or Poor Banking?

A lot of things are being said about underperforming bank assets. While the government is blaming the United Progressive Alliance’s regime for the rise of NPA (non-performing assets), the opposition charges the Centre of being hand-in-glove with defaulters. Amid the charge and countercharge, the truth about the rise of NPA is not being discussed at all. In 1969, the then Prime Minister Indira Gandhi announced her decision to nationalise 14 private banks. To explain the basic reason for such a drastic change in the banking system of the country, she categorically stated that the banks were run by the rich for the rich; they never cared for the poor. Her government, she claimed, would see that the nationalised banks help the downtrodden; entrepreneurs without financial backing; farmers who depend on rural money lenders to farm at exorbitant interests. She assured her countrymen that banks would be run to alleviate poverty of the masses and not to help capitalists hoard on their ever-burgeoning wealth. When Mrs. Gandhi returned to power in 1980, the then Finance Minister Janardhan Pujari started, of course with her permission, an unheard-of money disbursement system among the rural poor through “loan melas.” It continued for about two years. In 1982, she brought in Pranab Mukherji to the Finance ministry through a Cabinet reshuffle to salvage banks from bankruptcy, and saved them by adopting stern measures and rigorous fiscal discipline. Soon again though, successive governments—be it the Congress’ or the BJP’s, or coalitions—resorted to loan waiver schemes to win elections knowing well that the loans were given by banks at the instance of the government. This weakened the base of the PSU banks further, which by the new millennium had reached almost a double figure of the initial number of nationalised banks. These banks, currently 28 of them, are moribund now thanks to government-appointed managers who gave loans in the lakh and crore to so-called big industrialists not against collaterals, but against orders issued by the government for either power projects or road building projects. In certain cases, the bank managers lent thousands of crore without checking the antecedents of the persons in concern, almost all of whom were high-flying industrial tycoons. It is no more a secret that such Himalayan loans were the outcome of an unholy nexus of politicians, bureaucrats, and top PSU banks’ brass. Corruption is a contagion disease. Even a private bank such as the ICICI is in great trouble. The reason is simple. The cricket field can be drawn as an allegory to the case—clash of interest. The MD of ICICI, Chhanda Kochar, has had to step down to facilitate a probe. Until the result of the probe, she won’t return to her chair. This bank is in a shaky condition now. This is the net effect of nationalisation carried out by Mrs. Gandhi half a century before—pauperisation of our banks.