Dole for the rich
They’re like a silent-time bomb. In 2016, the bad loans – or gross non-performing assets – of state-owned banks surged by an incredible 56% to Rs 614,872 crore.
Indian Overseas Banks, the worst hit, has a gross NPA ratio (the ratio of bad loans to total loans) of 22%. The figure for UCO bank is 17%.
Who has taken these bad loans? The corporate houses with the largest bad loans are Reliance, Vedanta, Essar, Adani and Jaypee. These NPAs represent a massive transfer of wealth from the Indian taxpayer to India’s business empires. Many large corporate houses are being supported by India’s poorest citizens who, in good faith, pay taxes on everything from biscuits to their hard-earned income.
The effect on India’s economy is disastrous. Many of India’s largest capitalists, surviving on family wealth and government doles, are not entrepreneurs anymore. They have stopped adding value to the system and now exist simply as rent seekers.
Given the strong ties between large capitalists and political parties, there is little action against loan defaulters. In March, for example, Vijay Mallya, who was a member of Parliament at the time, was allowed to fly out of the country by the Modi government in spite of the fact that he owed public sector banks Rs 9,000 crores. Mallya is simply the tip of the iceberg. The largest defaulters sit comfortably without any fear of action from the authorities.
Apart from promoting rent seeking, the extremely stressed nature of India’s banks mean that they will be very cautious about granting new loans in the near future. Given the depressed nature of the economy due to demonetisation, this is bad news.
This article was first published on Scroll.in