People are being made to pay for the crimes of capitalist loan defaulters

Public sector banks are run in the service of private capitalist corporations

Fig 1: Total NPA and Cumulative write-off

At a conference of senior bank executives, the Reserve Bank of India (RBI) Governor on 11 July 2020 told that the economic impact of the pandemic “may result in higher non-performing assets (NPAs) and capital erosion of banks. A recapitalization plan for public sector banks (PSBs) and private banks has, therefore become necessary.”

Non-performing assets are those loans, given by banks, where even the interest is not getting paid in time for three months. If even the monthly interest is not being paid, the bank faces the risk that the principal may not be returned.  The bank has to either take effective steps to recover its capital at risk, or assume that a part or whole of it may be lost and make adequate provision for this loss in its account books.

Fig 2: NPAs as percentage of total bank loans

Recapitalisation of banks requires putting capital into banks to make up for losses incurred in writing off loans given to capitalists. In case of PSBs, it amounts to putting public funds to take care of losses of PSBs. Recapitalisation is carried out by either the central government directly putting public funds into the equity of the bank or issuing “recapitalisation bonds” to the bank. Through issue of recapitalisation bonds, the government borrows this money from the bank and gives it back to the bank as equity investment. The recapitalisation bonds increase the outstanding debt of the Government of India, whose burden again falls on the entire people.

PSBs have been writing off loans of capitalists year after year leading to huge losses and erosion of capital. The central government has been giving capital to banks year after year to make up for the losses instead of insisting that banks recover their loans. Thus, people as a whole are being made to bear the burden caused by defaults of capitalists.

The government has already infused over Rs 3.15 lakh crore of public funds into PSBs to take care of losses due to the write-off of loans of Rs 6.7 lakh crore in the last seven years by banks. The PSBs accounted for 80% of the write-offs. PSBs may need more than one lakh crore rupees in the current financial year for their recapitalisation.

The quantum of written off loans amounts to nearly half of the total NPAs in the account books of the banks. As much as Rs. 2.37 lakh crore was written off from the financial books of the banks in financial year 2018-19 alone to show reduced NPAs on their books. See Figure 1 for write offs and NPAs. Figure 2 shows year-wise NPAs as a percentage of total loans.

Consequent to large write offs, PSBs incurred losses totalling over Rs 127,000 crore in just two years, 2017-19.

Nearly 40% loans of banks are under moratorium due the current economic crisis. It is feared that 10-20% of them will become NPA. Due to this, gross NPAs could rise to 15 per cent from 8.6% by Mar 2021, as per rating company, India Ratings. The rise in NPAs in the current financial year will lead to much higher write-offs of loans and consequently much higher losses for PSBs.

When the proportion of NPAs rose from 8.4% of total outstanding bank loans in June 2016 to 10.2% in June 2017, the then Finance Minister Jaitley admitted that the bad loan problem was largely confined to 50 large capitalist monopoly houses, who account for more than 80 percent of the problem.

Instead of forcing the PSBs to take stringent measures to recover their loans from a few hundred capitalists, the State has been asking them to write off the loans in huge amounts.  The largest PSB, SBI has written off loans totalling to Rs 1.23 lakh crore over the past eight financial years but has recovered just over 7%. However, the State claims to have no money to waive off the loans of crores of farmers of much smaller amounts!

The State imposes no penalty or punishment on capitalists for default of payments to banks. Banks themselves admit that there are many capitalist companies that deliberately do not return bank loans. Banks call them ‘wilful defaulters’. Indian banks have written off a staggering amount of over Rs 68,000 crore due from 50 top wilful defaulters till September 30, 2019, according to the Reserve Bank of India (RBI). RBI has been refusing even to reveal their names.

The purpose of write-off of lakh of crores of rupees is to help the big capitalists who have defaulted. Public funds are then used to make up for consequent losses of banks due to write-offs in the name of ‘strengthening’ the public sector banks by recapitalising them. Recapitalisation, in essence, is the use of public funds to indirectly help big capitalists through public sector banks.

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