Loot, Scoot And Destroy

Public money, by way of savings and the taxes that we pay, has gone into the hands of PSBs, which are controlled by the neta and the babu.

The biggest fallout of the unresolved and burgeoning NPA crisis has been the destruction of national and household wealth, best symbolised by the over Rs. 3.5 lac crores of PSB recapitalisation by the government in the past 5 years. Irrespective of whether a sick company goes into liquidation, or is taken over, national wealth always gets destroyed. Such instances are aplenty. Take the case of Jet Airways, which at one time was India’s largest airline, which has now got a namesake buyer. Under the terms of the takeover of Jet Airways, banks that have a total exposure of Rs. 11,345 cr. to the company, will receive a mere Rs. 1000 cr., that too over a five year period plus 10%, equity in an entity which is now worthless. The loss is the closure of a national airline, loss of jobs and aeroplanes being sold as scrap. What a national loss.

Or take the case of Bharti Shipyard, which used to be India’s finest shipyard, with decades of naval engineering experience and expertise. Due to the inexplicable greed of Edelweiss, the shipyard could not be salvaged and the company has gone into liquidation. Its valuable engineering skills are lost forever and its precious plant and machinery is being sold as scrap. The dying shipyard has become a feast for the vultures. Another national asset lost. Or take the instance of DHFL. The company’s takeover by Piramal, entails a huge haircut of over 60% to the lenders, including its thousands of bondholders who were lured into investing by its AAA rating. Again a sizeable loss of public and household wealth and so is the case of Alok Industries, where bank loans of Rs. 30000 cr. were settled for a mere Rs. 5050 cr., the rest of the Rs. 25000 cr. gone down the drain.

Normally loans are meant to ultimately build assets, that contribute to national growth and development. A project loan, results in the set up of productive assets, with spin-off/multiplier effect benefits, by way of production/consumption of goods and services, the build-up of jobs and infra and revenue to the government by way of direct/indirect taxes. It could result in setting up of a steel plant, cement plant, power plant, pharma unit etc. all with spin-off benefits to their vendors and suppliers. Similarly, housing loans build household real estate assets. Banks thus play a crucial role in intermediation, such that individual housing savings get aggregated and converted into national assets.

Unfortunately in India, it has been the reverse. Public money, by way of savings and the taxes that we pay, has gone into the hands of PSBs, which are controlled by the neta and the babu. With weak/corrupt bankers ever willing to toe the line, the politicians have meddled in banks, resulting in corruption and cronyism influenced loans being given to the most undeserving ones. That explains the years and years of mindless lending by banks to the Anil Ambani Group, till the bubble burst. Thus instead of generating national wealth, due to such corruption/fraud/cronyism, it has been destroyed. Bankers who are expected to be the watchdogs of our savings deposited with them turned out to be the wolves and betrayed the trust reposed in them. The national wealth of lacs of crores of rupees has been destroyed in the process. And in this game of greed and power, all those who were meant to protect the nation’s wealth, colluded in its loot, for personal gains.

Apart from such a tragic and gigantic loss of national wealth, it has had many toxic side effects on India’s economy and growth:-

1. GDP growth has suffered due to our half-dead, bankrupt and zombie banks, unable to lend.
2. Getting loans has become extremely difficult, even for the most deserving borrower.
3. Tougher laws have been enacted, presuming each borrower to be a fraud, making compliance onerous and unbearably expensive.
4. Fraudulent/delinquents have amassed public wealth, which has been laundered, siphoned, put into Benami hands, making it very difficult to recover.
5. Such unjust enrichment of the fraudsters has set precedents for potential fraudsters to emulate.

And if courts could help in stopping this colossal national waste, they have not. Neither are NPA cases resolved within time in courts and nor do the fraudsters get punished by them, at the earliest.