Bank unions flay debt recast cover-up of bad loans

The All-India Bank Employees Association (AIBEA), will observe 5 December as 'All-India Demands Day' to highlight the threat of bad loans to the banking sector, which it claims, has been made worse by banks recasting debt of even willful defaulters.

The association wanted the government to make willful default of bank loans a criminal offence, and bring changes in debt recovery laws to speed up recovery of loans instead of allowing debtors to roll over bank loans.

In a statement, issued today, AIBEA alleged that the scheme of corporate debt restructuring was a cover-up for bad loans.

Banks tend to suppress the enormity of their NPAs, by reducing the provisioning for bad loans through write-offs, concessions, waivers, one-time settlements and other means.

''Of late, banks are resorting to heavy restructuring of bad loans to artificially show them as performing loans,'' the bank union stated.

Quoting Reserve Bank of India (RBI) estimates, AIBEA pointed out that banks have written off more than Rs1,41,000 crore of their bad assets during the six-year period between 2007 and 2013.

Most of these write-offs were in favour of big defaulters and corporate borrowers and the amount is still rising, it added.

Banks also tend to leave an increasing portion of their risky assets without adequate provision-coverage, a back-up against any possible contingency, thus making them more vulnerable to risks.

The current provisioning ratio in India is around 45 per cent, against the global average provisioning ratio of 70-80 per cent, AIBEA pointed out and called on members to mount pressure on bank managements to recover bad loans and save the banks from collapse.

Loan defaulters, mainly big corporate, owe banks more than Rs164,461 crore, AIBEA pointed out and urged the government to publish the list of bank defaulters and bring them to book.

The quantum of bad loans in the entire banking system, including foreign banks, is now over Rs200,000 crore, AIBEA pointed out.

Public sector banks were the worst sufferers with their bad loans leapfrogging over the last few years, C H Venkatachalam, general secretary of AIBEA, pointed out in a statement.

Gross NPAs of banks jumped from Rs39,030 crore in March 2008 to Rs1,64,461 crore in March this year, he said, adding that banks are accumulating fresh bad loans at an alarming pace.

Banks added nearly Rs5,00,000 crore to their bad loans between 2007 and 2013. ''There clearly is a nexus among borrowers, banks and political administration,'' Venkatachalam alleged.

In fact, Venkatachalam said, banks are foregoing their profits in order to cater to corporate delinquencies. ''It appears that banks are earning profits only to donate the same to hide corporate delinquency,'' he pointed out in the statement.

In the five years between 2008 and 2013, AIBEA said, banks made Rs1,40,266 crore provisioning for bad loans / NPAs.