Public Sector Banks Reeling Under NPAs Post Huge Losses

Continuing with the trend of the public sector being run into the ground under this BJP-led NDA government, India’s Public Sector Banks (PSBs) have reported a cumulative loss of a massive Rs.87,357 crore in the fiscal year 2017-18. The corresponding figure in the previous fiscal – 2016-17 – was a profit of Rs.473.72 crore.

Of the 21 PSBs, only two – Indian Bank and Vijaya Bank – have posted profits during in this period. Indian Bank’s profits stood at the highest, Rs.1258.99 crore, and Vijaya Bank’s profits were at Rs. 727.02 crore.

Among the loss-making PSBs, Punjab National Bank (PNB) reported the highest net loss of Rs.12,282.82 crore. PNB is the same bank which had been hit by the Rs.14,000 crore-scam carried out by Nirav Modi and his associates. Nirav Modi, according to a report in the Financial Times, has now applied for political asylum in the UK. In the 2016-17 fiscal, PNB had posted a profit of Rs.1324.8 crore.

Following PNB is IDB. Its net loss has now widened to Rs.8237.93 crore in the same period as opposed to a loss of Rs.5158.14 crore in the previous year.

The largest of the PSBs, State Bank of India (SBI), has also made a huge contribution to the cumulative losses of the PSBs. As opposed to a net profit of Rs.10,484.1 crore in 2016-17, the bank has reported a loss of Rs.6,547.45 crore in the fiscal year 2017-18.

The Indian banking sector has been reeling under the weight of rising non-performing assets (NPAs) and a host of cases of scams and frauds. For example, the CBI has begun probing the role of top banking officials in connection with the loans given to Vijay Mallya’s Kingfisher Airlines Limited. Kingfisher owes over Rs.9,000 crore to at least 17 lenders; most of them are major PSBs, including SBI, IDBI and PNB among others. 

It also appears that the RBI’s February 12 notification on “Resolution of Stressed Assets – Revised Framework”, which tightened prudential norms, had added to the woe of NPAs.

Newsclick has already reported on the rise of NPAs under the present government. The government itself had admitted in parliament on April 3 (Q.No.4050) that the amount under bad loans have grown massively during its rule, with their growth being 182% among public sector banks and a stunning 234% among private banks during 2015-16 and 2017-18. 

While the present government has attempted to shift the blame onto the previous UPA regime, as it was under its watch that many of the loans were given, the fact is that it is the neoliberal policies that are shared by both regimes that has led to the present situation. Privatisation of many key industries required financing of expensive long-term projects carried out by private players. At the same time, the private banks have been unwilling to cough up the required finance due to the risk and long period of wait for returns. The successive governments have made the PSBs dole out the finance to these private players, many of whom have defaulted, and some whom have fled the country.

The government has engaged in writing off of many of these loans from the books of these banks for “tax benefit” and “capital optimisation”, claiming that the write off does not mean that loans would not be recovered. What has however been witnessed is that barely 11 per cent of these written off loans have been recovered, while there is not much hope of recovering the extent of the remaining amounts owed to the banks.

At the same time, the interim Finance Minister Piyush Goyal has announced the setting up of a committee to give recommendations on the formation of an Asset Reconstruction Company for resolution of stressed accounts under Sunil Mehta, non-executive chairman of PNB. 

What is clear is that the Modi government is only too ready to make claims of high economic growth in the country and take credit for it, but when it comes to the issue of NPAs, the government shifts all the blame to PSBs.

The huge figure of losses can only lead to more clamour from the vultures of privatisations. Already, organisations such as FICCI and ASSOCHAM have been calling for some level of privatisation of India’s PSBs. The continuation of neoliberal policies will only further affect the health of the PSBs and the public must ask themselves whether they want to see their banks go the PSUs way, such as Air India.