Commentary / Ashok Mitra

Governments fight shy of bringing loan defaulters to book because
it goes against class interests

It is, do we need any convincing, a class biased system; the bias does not undergo any transformation whatever the political colour of the regime. Some of the scoundrels who make a habit of stealing public money may get caught. They may be locked up, or resign from the positions they were holding. Their replacements will not behave any differently though. The following narration may not entertain, but it will at least provide some enlightenment.

A dozen finance ministers and governors of the Reserve Bank of India have succeeded one another, in the North Block and Mint Road respectively, over the past five decades. They have, however, constituted a remarkably homogeneous mass; the dramatis personae have changed, the message of the drama has not. The banks, wise men have agreed in all seasons and under all regimes, must reduce the proportion of their non-performing assets.

There has also been unanimity of view that the parties responsible for burgeoning non-performing assets which have done in many banks, have to be identified and stern measures taken against them.

Successive finance ministries and RBI governors have nonetheless been extraordinarily coy the moment they have been cross examined on the factors underlying the poor state of affairs in the banks and the actual measures they proposed to undertake to improve the situation.

Alibis for non-action have never been in short supply. One particular alibi has been in much prominence in recent years. What can the poor bank management do, the non-performance of their assets is casually linked to the large scale, often thoughtless expansion in rural lending during the past quarter of a century; the rate of recovery has supposedly been horrendously low for farm sector loans.

The tendency not to return borrowed funds, it has been freely alleged, has received further boost from activities of politicians in search of rural vote banks. They have been instrumental in periodical write offs of advances to the peasantry and other such riffraff in society. The ethos of this species of politicians has been contagious, and spawned the practice of non-payment of bank dues on the part of all and sundry.

Truth has a way of revealing itself, but only in part. Successive finance ministers and RBI governors have been reluctant to furnish separately details of the total quantum of money owned to the banks by the rural community and the outstanding amount of loans not repaid on schedule -- or not paid at all --- by distinguished corporate bodies and the equally distinguished business and industry personalities presiding over these bodies.

Comparisons have been described as odious, perhaps because comparisons in this particular matter will have established the point that successive finance ministers and resented facts. Bad debts run up by parties belonging to the industrial and commercial sector are many times more in magnitude than loans not recovered from the agrarian community.

An additional bit of interesting datum pertains to the class character of habitual loan defaulters in rural areas. It is mostly big farmers and rich peasants who do not bother to pay back bank loans; they have political clout to fall back upon. The poor, on the other hand, have no such security cover the rate of loan recovery from them is way above the national average.

One has to ferret out such information; the composition of the non-performing assets of the banks has generally been kept as a closely guarded secret. In a moment of weakness, a couple of years ago or thereabouts, the RBI got prepared a report on the aggregate amount of bank money locked up in 'sticky' accounts in the name of well known corporate entries and/or persons closely associated with these entities.

Loans amounting to Rs 10 million and above not returned by such entities and persons added up to, according to the RBI report, Rs 370 billion. This was however the situation that obtained in 1993. The quantum of outstanding debt not recovered by the banks might have, for all one knows, by now climbed to the figure of Rs 500 billion or even more.

The RBI did indeed prepare such a report, but it is still under wraps -- the public has been denied the privilege of knowing its details. The crooks, who cheat society, are our honoured citizens. They enjoy, at taxpayers' expense, Z or A or B category security cover. If they or the firms they preside over have made a habit of not repaying bank loans, the establishment regards it as obligatory to hide the fact from the people.

These loan defaulters constitute the creme de la creme of society; it is not the done thing to disclose the information that they have walked away with public funds totalling Rs 500 billion or more. Whether it is the Central Bureau of Investigation or the RBI, the behavioural norms are, after all, the same.

Persistent attempts on the part of members of Parliament to have the RBI report laid on the floor of the House have met with non-success. The ministry of finance has fallen back on the hackneyed plea of statutory confidentiality of individual bank accounts which seemingly prevents the government from publishing the names of the loan defaulters. These archaic statutes were once written into our banking code by the British to serve honest imperial purposes, there is little reason why the colonial hangover cannot be got rid of.

Responding to the crescendo of public demand, the authorities in our neighbouring country, Pakistan, suspended, some years ago, the secrecy provisions and revealed the names of the celebrities who owed the banks huge sums of money over there. But the class instincts are evidently stronger in India than in Pakistan.

Had this sum of Rs 500 billion or thereabouts been recovered by some means by the banks, a dramatic transformation could have occurred in their overall operational performance. The ministry of finance and the RBI, commonsense suggests, must not spare any effort to recover these loans. The individuals associated with the direction and management of the corporate bodies which borrowed the huge sums involved do not subsist below the poverty line; the government's conscience should not be bothered in case a massive operation loan recovery were launched against them.

One lives to learn. Cross over to the Rajya Sabha, September 10, 1196 answer laid on the table in response to unstarred question number 3620. The question was a straightforward one; it intended to find out whether any penal action is proposed to be taken against the habitual loan defaulters listed in the RBI report.

Three separate enquiries were addressed to the finance minister: will he be pleased to state, one, 'whether the government proposes to ask the banks to call back, within a specified period, any outstanding long term or working capital loans to the defaulting parties'; two, 'whether the Securities and Exchange Board of India would be asked to disallow any public issues or shares or bonds by the defaulting companies and other companies in which the promoters or executive directors of the defaulting companies happen to be directors'; and three, 'whether the government contemplates to issue directives to SEBI to delist from the stock exchanges shares of the defaulting groups of companies unless the institutional dues are cleared within a reasonable time.'

Three short enquiries: Whether the government, which has various means as its disposal, proposed to apply any of these means in order to bring pressure on the loan defaulters so that public money is returned to where such money belonged. Please hold your breath. The following is the reply, verbatim, and in full, tabled in the Rajya Sabha on September 10 last in response to unstarred question number 3620: 'The information is being collected from the RBI and will be laid on the table of the House to the extent permissible under the rules.'

There can be only one interpretation of what the ministry of finance is trying to say. The government is seeking information from the RBI whether it -- the government -- proposes to institute the measures against defaulting parties of the nature referred to under three sections of the question; the government will oblige Parliament with the information whether it will proceed with the measures suggested in unstarred question number 3620 only after the RBI informs it -- that is, the government -- what its -- that is, the government -- what its -- that is, the government's -- views are.

No, please do not rush to the wrong conclusion. Morons have not taken over the ministry of finance. The answer tabled is merely one of several last ditch battles on behalf of the class fraternity. Cheats who have stolen public money are soul brothers of those who guard the corridors of power in New Delhi's South and North Blocks. The answer provided to unstarred question number 3620 in the Rajya Sabha on September 10 last in an echo of the same instinct which persuades the present prime minister to continue to pay his respects to a predecessor of his currently undergoing criminal prosecution under section 420 of the Indian Penal Code. Blood has always been thicker than any other liquid substances in a class ridden society.

Ashok Mitra, columnist, economist, former West Bengal finance minister and Marxist MP, will contribute a weekly column to these pages.