Although people are queuing up at banks, ATMs and post offices to access cash, the real panic is at different spot altogether.

Demonetization of 500s and 1000s The Panic is more at the banks than at the streetsPTI
Blog Demonetisation Friday, November 18, 2016 - 18:45

By M Satish

Although people are queuing up at banks, ATMs and post offices to access cash, the real panic is at different spot altogether. 

In February, an important news made headlines. An RTI application addressed to the Reserve Bank of India (RBI) disclosed that, in the period from Financial Year (FY) 2012 – 2015, 27 Public Sector Banks (PSUs) had “written off” “bad loans” to the tune of Rs 1.14 lakh crore (Rs 1.14 trillion). 

A loan lent by the bank turns into “Non-Performing Asset” (NPA) or “Bad Loan” when the borrower stops paying the principal or the interest to the bank over a period of time, which is 90 days. In-order for the banks to clean their balance sheets, these bad loans are being “written off” meaning these loans are deemed no longer as an asset (that does not generate any income) to the banks or close to concluding that all the money being sacrificed. (More information on Bad Loans can be seen here.)

Tremendous surge in the amount of Bad Loans

The period from FY 2004 till 2011, the bad loans written off was about Rs97,000 crore. It is very important to break up and see the amounts that were written off from 2012. 

FY 2012/2013 – Rs27,231cr 
FY 2013/2014 – Rs34,409 cr
FY 2014/2015 – Rs52, 542 cr
FY 2015/2016 – Rs59,547 cr

To put these figures into perspective, consider this: In the last 12 years (FY 2004 - 2016) around Rs 2.71 lakh crore worth of loans have been written off with the last two years alone contributing Rs 1.12 lakh crore to that figure. This shows that the banks more significantly in the public sector has been seeing tremendous and toxic surge in writing off bad loans. Finance Minister Arun Jaitely admitted that the NPAs of PSUs are at “unacceptable levels” and announced a reform project called “Indradhanush” which included Rs70,000 crore to the PSUs for recapitalisation over the next 4 years. This is a great amount being funded from the taxpayers’ money which could otherwise be well spent on welfare such as Health and Education. Even such a capital infusion shall be considered only paltry considering the current staggering amount of the NPAs.

The Current Alarming situation
Vijay Mallya, who owes atleast Rs7,000 crore to the PSUs wrote an open letter earlier this year in which he mentioned that banks have NPAs of all together Rs11 trillion (Rs11 lakh crore) and blamed that those who have more debts than his company KFA (King Fisher Airlines) have not been named as “willful defaulters”. Even if one argues Mr. Mallya cannot be taken as credible source of information, self disclosed informed by the banks on the orders of RBI states that on June 2016, the total NPAs of the banks stand at Rs6.3 lakh crore. On June 2015, the figure stood at Rs3.21 lakh crore which means a whopping 96% jump in just one year. The largest PSU in India, State Bank of India (SBI) is the largest holder of NPAs as well and two days bank its profits declined by 35% and the loses are squarely due to the huge amount of NPAs. This surge in NPAs is only likely to get higher as the former RBI Governor Raghuram Rajan earlier this year set March 2017 to be a deadline for the banks to cleanup their balance sheets.

Bad Loan Scam?
One may argue that these bad loans write-off would include those loans advanced to the medium or small scaled industries and farmers, but the truth is that a major portion of these bad loans are being unpaid by big corporate bosses. Former Reserve Bank Deputy Governor, Dr. K C Chakrabarty says that write-offs by banks is a “scam” and should be stopped. He says “Technical write-offs by Indian banks are inequitable and should be stopped. It is a big scam. Small loans are rarely written off, most of them are big loans”. Supreme Court had already taken suo motu cognizance of this menace. RBI in a sealed cover envelope submitted to bench led by the Chief Justice of India, T.S Thakur, a list of those who owe Rs500 crore or more. The judge disclosed that the total individuals who owe Rs500 crore are only 87 in number but their failed loans amount to Rs85,000 crore. The supreme court had openly asked “what is this happening? There are people who take thousands of crores in loans and run away. Banks are left to waive the loans or restructure them. On the other hand, farmers getting some thousands in loans are compelled to even sell their lands if they cannot repay”. The top court has multiple times this year alone has asked the RBI to disclose the names of these bad loan defaulters to the public, to which the RBI argues that there are some clauses of confidentiality in law that might not support such disclosure. 

Demonetization- Recapitalisation from common people
In the current famous activity of “Demonetization of 500/1000 notes”, the Narendra Modi headed union government has made careful slabs where any amount above Rs 4,500 should only be deposited in the account and not more than Rs 24,000 could be withdrawn in a week. Such a measure has resulted in the entire working classes of the country to hit the banks and deposit their possessed cash. This expedition of deposits has made SBI alone to receive Rs53,000 crores worth of deposits in just 2 days. Cumulative figures of all the banks and aggregating them in the coming weeks would result in a tremendous cash-inflow to the cash-strapped banks. 

The political will
Even if demonetization curbs cash bricks of black money to a certain extent, resists counterfeit currencies however temporarily and becomes useful in re-capitalizing the banks, the most important question when it comes to fighting black-money is what “political will power” has this government displayed in bringing them back. 

Earlier this year, the “Panama Papers” leaks’, one of the biggest leaks in recent times named more than 500 Indians who have hoarded black-money offshore. The leaks made world-wide jitters such as the Prime Minister of Iceland resigning from his post and the Pakistan Supreme Court ordering a probe on their Prime Minister, Nawaz Sharif. 

In the “Swiss leaks” of HSBC Switzerland that appeared last year, 1,200 Indians were listed who had amassed more than Rs 25,000 crore in that bank alone. The Income Tax Department probing these leaks are still exchanging diplomatic regulations between various countries and the investigation moves at snail’s pace. 

Ever since this government assumed power, it has aggravated its policies in favour of the corporate establishments. Two years in a row, every September 2nd Trade Unions all over India are striking over “Pro-Corporate Anti-Labour reforms” and earlier this year flash strikes conducted by Bengaluru garment workers’ that stalled the city made government repeal its EPF withdrawal regulations. In one-hand the government polishing the shining boots of the corporate power houses and on the other hand asking 120 crore population to bear the ill-effects of “reform measures” cannot be considered as “reformation”. 

The writer is an IT professional based out of Chennai. He is also the Joint-Secretary of Forum for IT Employees, Tamil Nadu. (

(Note: The opinions expressed are the personal views of the author.)

Become a TNM Member for just Rs 999!
You can also support us with a one-time payment.