As reported in The Wire, banks have written off Rs 14.56 lakh crore between 2014-15 and 2022-23. The share of large industries and services in the written-off amount is Rs 7,40,968 crore or 48.36%. The amount recovered during the period is a mere Rs 2.05 lakh crore or. 14.07% of the write-offs.
The simple question arising out of these figures is, who pays for the remaining amount of 86% of unrecovered write-offs? It is the respective banks that ultimately bear the burden and this is precisely the reason why banks had to book the losses amounting to Rs 2,07,329 crore successively for five years from 2015-16 to 2019-20.
Even though borrowers continue to be liable for repayment, in practice banks are compelled to forgo any hope of recovery. Thus, in practice, a write-off becomes not only a waiver but a sort of debt relief to the borrowers in which predominantly corporates have a major share. This is shown by how NPAs have been brought down over the last few years.
Mergers of public sector banks benefited corporates
This was the period during which the government resorted to ‘consolidation’ of public sector banks (PSBs). Thus the number of public sector banks has gone down from 27 to 12. As a sequel effect, large-scale closure of the branches of merged entities has taken place, putting customers, especially senior citizens and the poor, in their command areas through unnecessary inconvenience. This consolidation was neither demanded by the customers nor by the shareholders, nor by the employees. As was being argued by the government and some academicians, this was proposed to help reduce administrative costs, increase risk appetite, provide better capitalisation etc. But the same now has proved to be an alibi. Rather, bank consolidation and the formation of bigger entities help corporate borrowers raise finances from a single financial institution. Banks have to adhere to RBI’s stipulated group-specific exposure limit, which refers to the maximum loan as a percentage of its capital base that a bank can offer to a specific business client. Since mergers increase the capital base of the new entity, they allow corporate lenders to seek loans from a lesser number of banks rather than approach many financial institutions to raise money.
31/10/2023