Alarm bells as NPAs go up, rupee plunges

It’s difficult to decide which is more alarming — the rupee’s depreciation by 37 paise, a 19-month low, or the banks’ rising non-performing assets. It seems the latter, with NPAs surging to Rs 10.2 lakh crores, or 11.8 per cent of total loans dispersed by March 31, up from Rs 7.65 lakh crores (9.5 per cent of total loans) the previous year. The rupee touched Rs 68.63 on June 27 and Rs 68.79 on June 28, after breaching the Rs 69 mark earlier that day.

The rupee was hammered by rising crude oil prices (India imports 75-80 per cent of its total needs) and US President Donald Trump’s demand that India and others should stop oil imports from Iran. This is added to the spectre of a looming trade war that Mr Trump could trigger after imposing tariffs on Chinese goods. Iran is India’s third largest oil supplier, and gives India the advantage of paying in rupees. New Delhi is still considering whether to comply with the US request. It seems strange in this day and age for the world’s most powerful nation to try to dictate how sovereign countries should conduct their trade, and smacks of a savage form of colonialism.

The NPAs’ issue is more alarming: it could destroy the banking system and have an adverse impact on depositors. India has the fifth highest NPAs globally — the first four are Portugal, Italy, Ireland and Greece. The banks could possibly pay higher interest on deposits if they weren’t burdened with huge NPAs.

The RBI has noted that the banks’ gross NPAs have already crossed the Rs 10 lakh crore mark last fiscal. This magnitude of NPAs is even more alarming as it’s large borrowers who are wilful defaulters. They have the Insolvency and Bankruptcy Code and National Company Law Tribunal to give them an easy way out. They can pay just a small part of what they actually owe banks during arbitration proceedings. In March 2018, large borrowers accounted for 54.8 per cent of gross advances and 85.6 per cent of gross NPAs, an RBI report said. The NPAs’ situation is so grave that even former RBI chief Y.V. Reddy urged taxpayers who entrust their money to state-owned banks to ask the banks to explain why they couldn’t prevent frauds like the Nirav Modi one.

Prime Minister Narendra Modi had said when he took charge as Prime Minister in 2014 that he would be the country’s chowkidar. The NPAs have burgeoned manifold under his chowkidar-ship. Perhaps he also needs to explain this daylight loot of the people’s money. He also has to explain how under his watch there has been a 50 per cent (or Rs 7,000-crore) increase in deposits by Indians in Swiss banks in 2017. He had promised to get all the money that fled abroad and put Rs 15 lakhs into each person’s bank account.