India’s Crisis- A System That Lies

India’s Crisis- A System That Lies

In the excitement over the presentation of the Union Budget, which turned out to be a huge disappointment, a very important development got overlooked and sidelined. Speaking at a keynote presentation at the Indian Economic Policy annual conference at the Stanford University, USA, the former Reserve Bank governor Dr. Urijit Patel said that it is the failure on the part of the banks, the government and the regulator ie. the RBI till 2014, that has landed India into this giant unmanageable banking NPA mess. He said that the banks indulged in over lending, while the government too did not play its role and he also conceded that the Reserve Bank should have acted earlier. It changed and it was acted upon only when Raghuram Rajan insisted on an asset quality review of banks in 2015, resulting in the recognition of the huge stress in the system and the introduction of the bankruptcy law, in order to resolve the issue. Dr.Patel said that this led to a sharp decline in the ability of banks to fund the needs of the economy, whose growth has been sagging. He thus warned that short cuts, sweeping the problem under the carpet, is unlikely to work and will delay the unlocking of capital and will come in the way of financing future investment efficiently. He says that a delayed negotiation and taking timely haircuts for a timely resolution will come to haunt the sector.

What Dr. Urijit Patel says is now an undisputed and well-known fact. The UPA’s decade of rule witnessed tonnes of politically influenced corrupt lending by banks, to the likes of Jet Airways, ILFS, Bhushan Steel, Nirav Modi and thousands of others, now under criminal investigation and which were known to be bad loans, at their very inception. The entire system colluded and lied to the nation, right from the Finance Minister, to the top babus, to the bankers, the auditors, the consultants and as Dr. Patel reveals, the Reserve Bank governor too, in the matter of perpetrating this giant fraud on our country. First they all colluded in knowingly giving fraudulent loans, then they did it in greening accounts by giving new loans to repay old loans that they defaulted on, then they were in it together in bogus restructuring of default accounts to make them look good and viable and they finally colluded in blatantly manipulating the financial statements of banks, so as to hide the truth for years together. It was due to this all-around erosion of integrity in the system that the likes of ICICI Bank under Chanda Kochhar indulged in fraudulent lending for bribes and did not report it at all, till a whistleblower revealed it and for which all, the system rewarded her with a Padma Bhushan. The unfortunate part is that the Reserve Bank, which is one of India’s most respected institutions and which as the banking regulator conducts an annual inspection of banks and was aware of this scammy state of the banking system, did nothing to report it or stop it and let the rot fester for years. While not acceptable, you can yet expect the corrupt FM and the bankers to indulge in such banking frauds, but not the Reserve Bank and the auditors, both of whom are independent watchdogs, with the maximum responsibility in the matter. With these watchdogs remaining silent, the crooks were bound to loot the system, which they did.

This NPA scam has costed the nation over Rs.10 lakh crores, being money lost by banks in bad loans. The banks are now being recapitalised in order to restore their operations and lending capacity. The government has infused Rs.2.87 lac crores in banks during the past three years and proposes to put in another Rs.70000 crores in the current financial year. That is serious public money lost, with poor chances of recovery, as the giant haircuts being given by banks to settle bad loan cases indicates. The nation’s economic growth has sagged, due to the incapacity of these rotten banks to lend. Apart from this huge financial loss of lacs of crores to the nation, the bigger loss is the loss of integrity and public faith in the government, the bankers, the auditors and the Reserve Bank too. The curiosity that we have is that like in the case of Arvind Subramanian, the former CEA of India, who revealed in a study paper to the Harvard that the government had doctored the GDP statistics, which he disclosed only after he gave up office, so is the case with Dr. Patel, revealing the truth in USA after he quit office. Why are these top officials afraid of revealing the truth, on the Indian soil when in power?


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