`Politicians and trade unions to blame for NPAs'

`Politicians and trade unions to blame for NPAs'

A member of the Parliamentary Committee on Non-Performing Assets (NPAs), former Congress MP Surinder Singla saw red when CPI MP Gurudas Dasgupta blamed businessmen for bad loans in these columns earlier this week, calling the CII report on this `an apology of a robbery of the criminals'. Singla takes the battle to Dasgupta's court and points out that it is surely no coincidence that the two banks with the largest non-performing assets are headquartered in Calcutta, the heart of the country's trade union movement.

Singla argues that the crux of the problem of bad loans, apart from politicians calling up banks to grant loans to favoured industrialists, is that bank managers don't assess the capital needs of industry correctly in the first place. If Dasgupta can say in Parliament, counters Singla, that public sector units have turned sick because banks don't give them loans, why doesn't he see that the same logic applies to private industries also? And if Dasgupta calls the NPAs a robbery by criminalindustrialists, smiles Singla, delivering the coup-de-grace, are the heads of PSUs who default on loans also criminals? Are the managements of banks who recapitalised their balance sheets from budget funds also criminals? Singla met SUNIL JAIN to discuss these issues. Excerpts from the interview:

As part of the Parliamentary Committee on NPAs, you travelled to all cities to meet bank chiefs. What did they identify as the main cause for NPAs?
Apart from the fact that a large part of the NPAs (40 per cent or so) owe to loans to the priority sectors agriculture, etc the figures we received showed the loans from the CII kind of members, or big industry, are only a small fraction of this. Sure, they're important, but they're not the main source of the problem.

The main issue is that banks just don't sanction adequate working capital loans to industry, almost ensuring that if you don't bribe officials, you're going to be strapped for cash very soon. Banks don't even look at an industry's potentialor the value of the collateral security a company can offer. If Dasgupta attributes PSU losses to this attitude of the banks, surely the same applies to private companies as well.

But surely industrialists who default on loans have to be penalised?
No one's saying they shouldn't. But how does, say, publishing their names help? Apart from public humiliation, it achieves nothing. It even hampers their ability to borrow more to turn around the company so whatever money has been lent also gets lost. In any case, all banks have lists of defaulters.

But the point is that some deterrence is required.
Why do you just blame industry? Why don't banks take over the collateral they have mortgaged with them? We have a system for ensuring that there are no NPAs. Why don't we use it? If the system allows people to play with it to go to the BIFR on flimsy grounds, get into lengthy court proceedings etc then we need to change the system, not just blame industrialists. Firms go sick for many reasons.If you blame private industry for bribing banks to get favourable loans, why not take action against the bank managers who gave these loans? In any case, let's look at why firms turn sick. A large part of it, say in the polyester or steel industry, is that Manmohan Singh and P. Chidambaram lowered import duties very fast, even faster than was warranted under the WTO agreement, and this made several industries sick. Punjab, for instance, has seen its export orders for hosiery drop, with other currencies falling while the Indian rupee hasn't been allowed to fall. Who's to blame for this? Manmohan Singh, or Chidambaram. The world over, banks look at such issues of recession before they pull the plug, or go around calling loans non-performing. According to an IMF study of 15 countries, banks have lost $250 billion due to turmoil in markets. Who's to blame for this?

But don't politicians get banks to lend them money for bad projects?
Of course they do, but our findings were that this is limited. Themore important point is that the substandard assets of public sector banks (as a percentage of total loans) is around 10 per cent higher than those for private banks. What that means is that there is a genuine problem in the way public sector banks are run. This is the issue which needs to be addressed. It's very clear that no private sector banker can be forced to give loans to doubtful projects. How does this happen in public sector banks?Another issue that no one's talking of is that the two sickest banks UCO Bank's NPAs are 10.83 per cent and United Bank's are 14.73 per cent are headquartered in Calcutta, the very heart of the trade union movement. The sickest industries in the country today are concentrated in West Bengal. Surely this points to the fact that trade unions and their promotion of inefficient work practices have something to do with companies turning sick. Who will Dasgupta term a robber for this?

Apart from Dasgupta's comments, the issue in the CII case is that after submitted itsreport, it chickened out when the bank unions said they'd go public with the defaults' names.
That's absolutely correct. But let's also recognise that everyone, including CII, has the right to present a report or a view. It is up to the government to accept it. Dasgupta is attacking CII's right to its view. That's undemocratic.