Non Performing Asset (NPA) has become the latest buzzword in the Indian banking
corridors. It has left behind words such as Growth, Profit and Expansion by a huge margin.
A huge churning is taking place in the Indian banking sector. A sector which had
worked under an opaque system which allowed the fraudsters inside and outside
the banks to defraud the banks. The reporting systems were also built in such a
way that there was lack of intra and inter bank communication. The fraud that
was uncovered at the Punjab National Bank was a result of such a system where
there was a delay in communication among branches, between branch and the
regional headquarter and among different banks. There have been allegations
of round-tripping of money and bribes to the bankers for last many years.
Round tripping happens through multiple subsidiaries that companies may set up. When the parent company has to
payback the money to the lender (usually a bank), one of the many susidiaries goes back to the same bank or any other bank to seek a loan.
Once this loan is sanctioned, it is partially or wholly spent in servicing the loan of the parent company.
But most of them were never probed or there wasn't any kind of closure.
Public sector banks have been the worst affected lot. These banks lack
accountability towards customers, investors and the tax payers. They know for a
fact that in case of a crisis, the government will have to bail them out.
Indian Banks and their NPA numbers
IDBI Bank tops the list in terms of Gross NPA percentage. Almost 30% of the
amount it has lent to the borrowers has become non-recoverable. Most of the
borrowers are companies that have either shut down their operations or willfully
not paid the money back. There are allegations that many of these companies have
swindled away the loan amount that they had received. A bank may write off
a loan and report it as a loss in the books. In case it can recover the written
off loan, it has to report it back in the books as income.
It is a risky business
Running a business is full of risks. There is always an uncertainty involved
at every step. Businesses need loan to grow to the next level. Until a company
has built enough reserves of its own, it must seek money from lenders. No lender
is going to lend money unless it has been sufficiently verified that the
borrower has enough means to repay the loan, hence due
diligence is necessary at all levels.
A business may fail due to circumstances that cannot be controlled. For
instance, a company may have been producing a product which is no more in
demand or a company may have just one client who has closed the factory. Even under
circumstances, a bank should be able to recover the loan amount after
liquidating the assets.
It requires lack of integrity on both the sides
For a fraud to take place not every banker or auditor has to be pliable. You
need only those to lack integrity who matter. The bribe need not be in the form
of money as it involves a lot of hassles. A bribe can be given in kind such as a
Rolex watch, a fully sponsored foreign trip, transfer of a plot, a flat in the
property being developed, an expensive set of jewellery, a bottle of an
expensive scotch, fully paid stay at a five-star hotel or any other means.
After digging into the list of willful defaulters we have found a few
familiar names and a lot more unfamiliar names who have contributed to the
losses reported by the banks.
We found an
article, published by Business Standard, which has listed Zoom Developers as
one of the willful defaulters listed by the UCO Bank. Zoom Developers has
defaulted on an outstanding loan of Rs 309.50 crore. Punjab National Bank ) PNB)
(see Table 2 ) has also listed Zoom Developer as a willful defaulter. Most of
the top defaulters at PNB are into diamond or jewellery business.
We chanced upon a name, PAILAN EDUCATIONAL TRUST, in the UCO Bank's willful
defaulters list. This company has defaulted on an outstanding due of Rs. 23.94
crore. We found the same company in the Allahabad Bank's defaulters list, the
default is on an outstanding amount of Rs. 27.05 crore. The promoter, Mr. Apurba
Saha, features as promoter of another defaulter company in the list published by
the UCO Bank. The company is ACSON AGRO PRODUCTS EXPORTERS & BUILDERS PVT LTD
and the outstanding loan amount was Rs. 8.95 crore. This would not have happened
if the banks had shared information among themselves.
We found another set of companies (with same person as the promoter) in the
list provided by the Allahabad Bank >
CONCAST GLOBAL LTD (CGL)
CONCAST ISPAT LIMITED(CIL)
CONCAST STEEL & POWER LTD(CSPL)
CONCAST EXIM LTD (CEL)
This company may have had problems due to crash in steel prices, but this
case should be investigated.
Amtek Auto Limited
EPC Constructions India Limited [EPCCIL] (Formerly known as Essar
projects (India) Ltd.)
S Kumars Nationwide Limited
Kingfisher Airlines Ltd.
Ruchi Soya Industries Ltd.
Gupta Coal India Pvt. Ltd .
Era Infra Engineering Limited
Deccan Chronicle Holdings Ltd.
Is it a mere coincidence that three out of the top seven banks, in terms of gross NPA percentage (%), are
Kolkata based? NPA numbers of the Public Sector Banks (PSB) is still suspect, it is possible that the numbers have been underreported.