OC THE TRUTH ABOUT EXCLUSIVE INTERVIEW SOUTHERN CONQUEST ‘LOVE JIHAD’ GENERAL BIPIN RAWAT THE BJP’S LONG GAME www.indiatoday.in DECEMBER 28, 2020 `75 REGISTERED NO. DL(ND)-11/6068/2018-20; U(C)-88/2018-20; LICENSED TO FARIDABAD/05/2020-22 POST WITHOUT PREPAYMENT REGISTERED NO. RNI NO. 28587/75 RNI NO. WHY OUR BANKS ARE TIMEBOMBS MASSIVE FRAUD, MISGOVERNANCE, NPAs OF Rs 9.4 LAKH CRORE AND MORE IN THE OFFING. INDIA’S BANKING SYSTEM IS HEADING FOR A CATASTROPHE. HOW TO AVERT IT FROM THE EDITOR-IN-CHIEF n a move designed more to buttress her socialist creden- difference is that it is the taxpayer’s money in the case of PSBs, tials than for any compelling economic reason, Mrs Indira while shareholders bear the brunt of the misdemeanours of Gandhi nationalised 14 of India’s largest private banks, private banks. I which held 85 per cent of the country’s deposits, in 1969. Over the years, these nationalised banks have deepened ver the past six years, there have been enough indications of bank penetration in the rural hinterland and increased credit O the rot within the banking sector. The slew of cases began to agriculture, although some have argued that this could just with Vijay Mallya and Nirav Modi, businessmen who epitomised as well have been achieved by exercising social control over the worst of crony banking. With bad debts of Rs 8.8 lakh crore, private banks. Meanwhile, the collateral cost to the Indian PSBs account for nearly 85 per cent of India’s total NPAs. The cou- economy has been enormous as it set in motion a gravy train ntry’s largest government-owned bank, State Bank of India, alone on which politicians and crony businessmen have taken a free has Rs 2.23 lakh crore of bad loans. Mounting NPAs mean banks ride ever since. There have been loan melas where banks were are wary of lending despite sitting on huge cash piles. Public trust forced to extend credit with little chance of recovery, thanks to in banking, the cornerstone of the business, is severely eroded. electorally-dictated populist compulsions. Today, about 65 per Capital, as we all know, is the lifeblood of the economy. Without cent of India’s banking sector (by deposits) is state-owned, and access to it, businesses cannot grow and, without growth, our Indian banks were among the most unprofitable in the world economy will continue to teeter on the edge. At a time it is facing in 2018-19. Run as political fiefdoms and with all the attendant one of its worst years on record, rising NPAs mean we could be inefficiencies of government-owned businesses, India’s public staring at a crisis of unprecedented magnitude in the coming year. sector banks (PSBs) are giant black holes sucking in trillions of The banking sector is no doubt in an unholy mess. Riddled with rupees of taxpayers’ money. The government has spent roughly fraud, growing NPAs, sloppy management, and averse to risk, the Rs 3.5 lakh crore in recapitalising PSBs in whole sector is stuck in a quagmire. The govern- the past few years. This is the entire outlay for ment’s half-hearted reform of merging 10 PSBs the Jal Jeevan Mission, announced in August into four is just window-dressing the problem 2019 to provide piped drinking water to all and kicking the can down the road. Attempts to households. This August, RBI’s annual report give PSBs autonomy and appoint more profes- said frauds cost banks Rs 1.86 lakh crore in sional management have proved stillborn. FY20, of which PSBs accounted for 80 per An RBI working group has taken the first cent. This figure is six times the government’s step by suggesting that large corporate houses intended expense on women and child devel- become bank promoters. It’s a move fraught with opment. It’s a crying shame that the taxpayer the risk of connected lending or banks lending should be bearing the cost of bank malfea- to their own holding companies. RBI data shows sance when the money could be used for more that PSB market share in loans dipped from meaningful purposes. 74.3 per cent in 2015 to 59.8 per cent in 2020 Last month, business circles were rattled while that of private banks surged from 21.3 per by the impending collapse of yet another cent to 36 per cent. Some private banks have bank. The RBI stepped in to write off Rs 318 excelled in value creation. HDFC Bank’s market crore worth of debt and Rs 336 crore of equity to bail out Lak- cap italisation, for instance, was Rs 7.79 lakh crore on December 16, shmi Vilas Bank. Mercifully, this was small change, but it drew more than the combined m-cap of all PSBs (Rs 4.88 lakh crore). attention to the looming crisis non-performing assets (NPAs), There is a message in this if the government chooses to heed as bad loans are called in banking parlance, posed. NPAs stood it. The long-term solution demands a complete reform of India’s at Rs 9.4 lakh crore as of June 2019. This number, four times banking sector. It calls for greater scrutiny and stringent controls India’s entire health budget, now rocks the struggling ship of on large loans, including asset audits and reviews, and strict India’s economy. Most of these loans were extended in the ris- checks every quarter. ing tide of India’s economic boom a decade ago when Indian Our cover story, ‘Why Our Banks are Timebombs’, put togeth- bankers lent indiscriminately, especially to the then-booming er by Executive Editor M.G. Arun, Deputy Editor Shwweta Punj money-guzzling telecom and real estate sectors. Of late, howev- and Senior Editor Anilesh S. Mahajan, looks at this very worrying er, the existing NPAs are beginning to look like just the tip of the phenomenon and suggests ways out of it. iceberg, with an expanding mass of bad loans lurking below the If the Indian economy is to grow, credit will have to flow with- surface. With the pandemic-dictated and government-mandat- out burdensome NPAs. India’s credit to GDP ratio is 56 per cent; ed moratorium on interest payments, former finance secretary China’s is in the 150-200 per cent range. For India to become Subhash Chandra Garg estimates that NPAs will increase by a $5 trillion economy, credit growth needs to be at 15 per cent an additional Rs 10 lakh crore by the end of this financial year, for the next five years; it is currently about 8-10 per cent. If the doubling the existing number. As companies fail to repay banks government is serious about economic development, it must bite and their debt balloons, the proverbial iceberg keeps getting the bullet of fundamental bank reform. Otherwise, the economy bigger. In 2017, the government drew up a plan to infuse Rs 2.11 will just blunder along. lakh crore—more than twice the budgetary allocation to educa- tion this year—to recapitalise its bleeding PSBs. Private sector banks are not above reproach either. The examples of ICICI Bank and, more recently, YES Bank, where the promoters were compromised, underline this. The (Aroon Purie) Illustration by NILANJAN DAS UPFRONT LEISURE WEST BENGAL: THE THE BIG ART. 356 DARE PG 6 SHORTS PG 53 www.indiatoday.in AIR INDIA: SALE TO Q&A WITH TAKE WING? JOHNNY LEVER CHAIRMAN AND EDITOR-IN-CHIEF: Aroon Purie VICE CHAIRPERSON: Kalli Purie PG 12 PG 60 GROUP EDITORIAL DIRECTOR: Raj Chengappa INSIDE GROUP CREATIVE EDITOR: Nilanjan Das; GROUP PHOTO EDITOR: Bandeep Singh MANAGING EDITORS: Kai Jabir Friese, Rajesh Jha EXECUTIVE EDITORS: S. Sahaya Ranjit, Sandeep Unnithan, Manisha Saroop; Mumbai: M.G. Arun SENIOR DEPUTY EDITOR: Hyderabad: Amarnath K. Menon DEPUTY EDITORS: Kaushik Deka, Shwweta Punj SENIOR EDITORS: Sasi Nair, Anilesh S. Mahajan Mumbai: Suhani Singh; Jaipur: Rohit Parihar SENIOR ASSOCIATE EDITORS: Ashish Mukherjee 20 Mumbai: Kiran Dinkar Tare; patna: Amitabh Srivastava ASSOCIATE EDITORS: Sonali Acharjee Kolkata: Romita Sengupta; Bhopal: Rahul Noronha ASSISTANT EDITORS: Zinnia Ray Chaudhuri, Aditya Wig PHOTO DEPARTMENT: Yasir Iqbal (Deputy Chief Photographer), Rajwant Singh Rawat (Principal Photographer), Chandra Deep Kumar (Senior Photographer); Mumbai: Mandar Suresh Deodhar (Chief Photographer) PHOTO RESEARCHERS: Prabhakar Tiwari (Chief Photo Researcher), Saloni Vaid (Principal Photo Researcher), CHIEF OF GRAPHICS: Tanmoy Chakraborty ART DEPARTMENT: Sanjay Piplani (Senior Art Director); Angshuman De (Art Director); Devajit Bora (Deputy Art Director); Vikas Verma (Associate Art Director); Siddhant Jumde (Senior Illustrator) PRODUCTION DEPARTMENT: Harish Agarwal (Chief of Production), Naveen Gupta (Chief Coordinator) CHIEF OPERATING OFFICER: Manoj Sharma ASSOCIATE PUBLISHER: Anil Fernandes (Impact) IMPACT TEAM Senior General Manager: Jitendra Lad (West) General Manager: Mayur Rastogi (North), Upendra Singh (Bangalore) Deputy General Manager: Indranil Chatterjee (East) GROUP CHIEF MARKETING OFFICER: Vivek Malhotra SALES AND OPERATIONS COVER STORY Deepak Bhatt, Senior General Manager (National Sales) Vipin Bagga, General Manager (Operations) Rajeev Gandhi, Deputy General Manager (North) Syed Asif Saleem, Regional Sales Manager (West) S Paramasivam, Deputy Regional Sales Manager (South) FIXING THE Piyush Ranjan Das, Senior Sales Manager (East) BANKING Illustration by by Illustration Volume XLV Number 52; For the week December 22-28, 2020, published on every Friday MESS NPAs and bank failures l Editorial/Corporate Office Living Media India Ltd., India Today Group Mediaplex, FC-8, Sector-16A, Film City, Noida - 201301; Phone: 0120-4807100 have eroded public trust DAS NILANJAN l Sub scriptions: For assistance contact Customer Care India Today Group, C-9, Sector-10, Noida (UP)-201301; Phones: Toll-free number: 1800 1800 100 (from in India’s banking system, BSNL/MTNL lines); (95120) 2479900 from Delhi and Faridabad; (0120) 2479900 a crisis that needs to be from Rest of India (Monday-Friday, 10 a.m.-6 p.m.); Fax: (0120) 4078080; Mumbai: 022-66063411/3412, Kolkata: 033-40525327, Chennai: 044-24303200; addressed urgently e-mail: [email protected] l Sales: Direct all trade enquiries to General Manager (Sales), Living Media India Limited, C-9, Sector-10, Noida-201301 (UP) l Regd.