February 7, 2017 1:29:35 am
While the Economic Survey unveiled by the government last week said that “large write-offs will be required to restore viability to the large IC1 companies (those companies whose earnings do not even cover their interest obligations)”, former Reserve Bank Deputy Governor KC Chakrabarty has questioned the practice of “technical write-offs” stating such write-offs are scandals that create non-transparency, destroy the credit risk management system and bring all types of wrong-doings into the system.
Why do you think technical write-off by banks is a bad idea?
The word ‘technical write-off’ is not used anywhere in the world. What’s there to write off? We have invented two words. We don’t consider ‘technical write-off’ as write-off… as use it as per our convenience. There’s nothing like technical write-off. It’s non-transparent and it’s without any policy. There’s possibility of wrong-doing. Write-off is legitimate financial tool. If the borrower doesn’t pay back the money and if you’re (bank) not able to recover that money, you have to write off that loan. That’s when all of a sudden some crisis has happened, but write-off is less and generally banks make the provisions. I have nothing against write-off but it’s to be done scarcely and within a policy with all efforts to recover the money. Any asset which is backed up by tangible asset is never written off.
Secondly, you must be subject to scrutiny for these write-offs. There must be a policy. You ask any bankers. They have written off Vijay Mallya’s loan. Then how are they going to recover that money? All I am saying is that write off the loan as per the policy but that has to be done by somebody who is authorised to do it. Use it very sparingly and do it where it’s essential. If there’s asset, why are you writing it off?
There’s a perception that write-offs are not transparent and they are being misused. What’s your view?
Sometimes if some crisis has happened- to clean up the balance sheet let the management do it… that’s cleanup. But you can’t clean up every quarter or every year. Once in five or ten years we’re cleaning up the balance sheet for the last 20 years. You can’t clean up every year.
Generally write-off is small, used sparingly when there’s some crisis. Technical write-off creates non-transparency, destroys the credit risk management system and brings all types of wrong-doings into the system. I have no problem in writing off as per your policy. You must declare how much you’re writing off. You’re writing off public money. It’s a scandal. You’re writing off public money you’re not acknowledging. It’s not as per a policy. Why don’t you ask any banker about their policy on technical write-off?
Why are small ticket loans not written off but big industrial loans are merrily written off by banks?
If you don’t write-off across all segments, you always say small loans are bad simply because you don’t write off small loans. It creates misallocation of resources and mis-pricing of risk. Small loans are written off when the government gives the money and you will make such a hue and cry. You can’t do such large write-offs in the name of cleaning the balance sheet. You write off big industrial loans and that’s why NPA is less. For the last 70 years, we have been hearing that public sector banks NPAs have gone up because of small and priority sector loans. When I went to the RBI, I demonstrated that if you consider write-offs, NPAs in small loans are smaller than NPAs in big loans.
Are you saying the country doesn’t have a good policy to tackle bad loans and write-offs?
We don’t have proper data on NPAs. The RBI has stopped giving bank-group wise NPAs. Total NPAs include PSU banks, private sector, RRBs and non-banking finance companies. All combined, what’s the real NPA? You won’t be able to find out. Nobody compiles the real picture. It’s totally mismanaged and there’s no system to address this issue. That’s why I call non-performing asset (NPA) as non-performing administration. From the year 2000 up till now, loans worth more than Rs 400,000 crore have been written off.
Has this money gone down the drain? Why are banks reluctant to disclose details about the write-offs?
My estimate is that 15-20 per cent have been recovered. If the write-off is not there, then it is in the books of the banks. All write-offs should be revealed. What’s the problem in revealing? It should be revealed segment-wise — agriculture, small loans and industry loans. Details of the top 100 names (borrowers) involved in write-offs should be revealed. We will know the identity of top borrowers whose loans have been written off.
Don’t banking laws prevent banks from disclosing the details of rogue borrowers? How big is the bad loan problem?
You (banks) are writing off loans without making efforts to recover the money. Your contract with the borrower ends when you write off the loan. When you write off, you’re severing the relationship.
When the farmers loans were written off some years ago, the government instructed that in the banks’ website in each branch you must write the name of the farmer and how much loan is written off. When small loans are written off, they can be published.
When big loans are written off … revelation of write-off is must. Now over Rs 6,00,000 crore is the NPA now. If you include Rs 4,00,000 crore write-off, then I will say Rs 10 lakh crore is the real NPA. Public money has gone. To whom it has gone, nobody knows. And we’re taxing over one Vijay Mallya. I have no sympathy for him. There are many others.
Why is this bad loan issue cropping up every now and then?
You will find the NPA problem every five or ten years because of the non-performing administration. When the economy is doing well, it will be under the surface and when the economy is doing badly, it will come up. It (NPA problem) was there in mid-80s and then it came in 2000s and again in 2008-09. Technical write-off is the most dangerous thing.
Are provisioning and restructuring schemes hiding the real NPA situation?
Provisioning is not clean-up of banks’ books. Clean-up happens when you resolve the NPAs. If Rs 200 crore NPAs is there, then give Rs 200 crore capital to the bank and the matter is over for the government … If you improve the administration, credit management, borrowers administration and the country’s governance, NPAs won’t be an issue. Schemes like S4A, 5:25 and CDR are financial tools to resolve NPAs. If somebody is sick you must give the medicine. In our country, all the restructuring is to hide the NPAs.
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