Banking

Shelve Public Sector Bank Recapitalisation With RBI Funds, Yechury Tells Modi

In his letter, Yechury also demanded that the government release the names of the top 100 loan defaulters and create an action plan to monetise their assets.

Sitaram Yechury. Credit: PTI

Sitaram Yechury. Credit: PTI

Communist Party of India (Marxist) leader Sitaram Yechury has urged Prime Minister Narendra Modi to shelve the plan to recapitalise public sector banks by withdrawing between Rs 3-4 lakh crore from the Reserve Bank of India’s capital base.  “This is a dangerous idea as it diminishes RBI’s capacity to withstand internal and external economic shocks,” Yechury said in a letter to Modi. He also asked the prime minister to focus instead on recovering over Rs 8.55 lakh crore in bank loans which have not been returned by the borrowers.

In the letter delivered on Thursday, the CPI(M) general secretary demanded that under no circumstances should the plan to recapitalise banks be executed without an action plan for the recovery of unpaid loans. “Your government has not put the big business houses under any pressure to return the loans. They continue to flash their lavish lifestyles and their personal wealth remains unaffected,” he said.

Yechury’s letter has given enough indication that the issue will also be raised by the Left and other parties during the upcoming monsoon session of parliament. He urged Modi to put into practice an urgent action plan to start the recovery of pending loans from the top 100 borrowers, whose total non-performing assets (NPAs) stood at 19.3% as of March 2016, up from 0.7% in March 2015.

Countering the Modi government’s claims of seriousness about recovering the dues, the Left leader said, “while the NPAs have increased by nearly 80% in the last one year, it is sad to note that your government’s efforts for greater recovery have not shown any corresponding rise in the resolve to recover these”.

The total recovery in the financial year 2015-16, he continued, was Rs 1.28 lakh crore, which included 46% of this amount being written off and even then was only marginally higher than Rs 1.27 lakh crores recovered in the previous fiscal year. “This gives credence to the view that your government is not serious about recovering public money from these defaulters,’’ Yechury said.

Yechury also demanded that the names of defaulters be made public. “You must begin by making public their names with the due amount; the list is already available with the RBI, your government and the Supreme Court,” he said, adding that “failure to do so would mean that your government is making the poor Indians pay for the profligacy of these crony capitalists.”

The Communist party leader also asked the prime minister to “initiate an action plan to monetise the assets of all defaulters”, saying the “the plan to recapitalise the PSBs (public sector banks) by eroding RBI’s capital base must be shelved” and the principle of recovery first, recapitalisation later must be followed in letter and spirit by the government.

Yechury also came out in support of RBI governor Raghuram Rajan, saying it was the Asset Quality Review undertaken by the central banker and its Financial Stability Report which had shed light on the real health of the Indian economy. And yet, Yechury wrote to Modi, “your silence, while an important constitutional functionary was being viciously attacked, has led many to believe that you are not interested in completing the bad loan clean-up exercise. This leaves no other explanation but to conclude that your government actively patronises and promotes ‘crony capitalism’.”

Yechury in his letter also rubbished the prime minister’s promise before the 2014 Lok Sabha elections to bring back black money and have Rs 15-20 lakh transferred into every individual’s bank account. “Leave alone your promise of bringing that amount back, money from the banking system under your watch, if the country’s top auditor is to be believed, has ‘been transferred abroad and may never get recovered’,” he wrote.

Giving a detailed account of how the RBI’s Financial Stability Report has pointed out that more than Rs 8,55,551 crore of the loans given by the banks have not been returned by the borrowers, Yechury wrote that as of end-March 2016, gross non-performing assets (GNPAs) of all scheduled commercial banks stood at Rs 5,60,822 crore, 7.71% of their gross advances of Rs 72,73,927 crore.Their restructured standard advances were at Rs 2,94,729 crore or 4.05% of the gross advances. He said, “this is every single Indian’s money which has been misappropriated by these borrowers, which are mainly big corporates.”

The CPI(M) leader said so deeply entrenched is this problem that even the comptroller and auditor General of India Shashi Kant Sharma stated at a recent public event that “there is a belief that a significant part of NPAs could be amounts fraudulently obtained as advances from the banking system. There is also a belief that a large part of these amounts may have been transferred abroad and may never get recovered”.

Worse, he said, the asset quality of the PSBs was even more critical with a stressed advances ratio of 14.5% in March 2016 which has created an alarming situation whereby the total market value of the PSBs was now far less than the GNPAs owed to them.

Yechury also noted that top ten corporate houses owe a staggering Rs 7 lakh crores to PSBs and financial institutions. Citing a Credit Suisse report of 2015, he said, the gross debt of Reliance Group was Rs 1.25 trillion, Vedanta Group Rs 1.03 trillion, Essar Group Rs 1.01 trillion, Adani Group Rs 96,031 crore, Jaypee Group Rs 75,163 crore, JSW Group Rs 58,171 crore, GMR Group Rs 47,976 crore, Lanco Group Rs 47,102 crore, Videocon Group Rs 45,405 crore and GVK Group Rs 33,933 crore.

Opposing the proposed moved to recapitalise the PSBs by using Rs 3-4 lakh crore from RBI’s capital base, he said, “this is a dangerous idea as it diminishes RBI’s capacity to withstand internal and external economic shocks”. Moreover, by becoming owners of these banks, the RBI will have mixed objectives as it conducts and regulates monetary policy, he reasoned.

Yechury said even Rajan had last month opposed the idea, which was first floated in this year’s annual economic survey, saying “this seems a non-transparent way of proceeding, getting the banking regulator once again into the business of owning banks, with attendant conflicts of interest”.

Opposing the move, Rajan had remembered how on the recommendations of the Malegam Committee, the government of India had bought RBI’s 59.7% stake in the State Bank of India at Rs 35,531 crore in 2007.

Yechury said while proposing the idea in the annual economic survey, the chief economic advisor (CEA) had also categorically warned that, “Most important, any such move would need to be initiated jointly and cooperatively between the government and the RBI. It will also be critical to ensure that any redeployment of capital would preserve the RBI’s independence, integrity and financial soundness – and be seen to do so.”

In accordance with the CEA’s warning, he said, the move to recapitalise the banks from RBI’s capital base, also opposed by the RBI governor himself, needs to be shelved. “The government must find a transparent way to do so, instead of surreptitiously trying to maintain its fiscal deficit by eroding RBI’s capital base,” he demanded.