VIEW | ABG Shipyard scam: RBI must bring in asset-based funding to foil diversion of funds

Banks have always been in the news more often than not for all the wrong reasons. And the jury has always been out on whether the problem of Non-performing Assets (NPA) is predominantly of the borrower-inflicted or fence-eating-the-crop variety though the preponderance of view is it is the latter. The Narendra Modi government to its credit has not brushed the problem entirely under the carpet but, in fact, has read the riot act to the perpetrators by enacting the Fugitive economic offences law that empowers authorities to seize and impound assets of borrowers slipping out of the country. Vijay Mallya who has the dubious distinction of being the first to be declared ‘fugitive’ finds his London home quite disquieting with the threat of being extradited looming large.

The ongoing news of ABG Shipyard owing to as many as 28 banks a massive Rs 22800 crore, with the CBI suspecting massive diversion of funds by its directors has come at a time when the government thought that the NPA menace was under control at 8.5 percent of the total outstanding from the earlier 14 percent. The truth is we can never go into a self-congratulatory mode or become complacent because Indian banks barring a few are virtually sitting on an unknown quantity of powder keg in their loan portfolios. Periodic recapitalisation of PSBs after cleaning up their balance sheets (euphemism for write offs) with taxpayers’ money amounts to throwing good money after bad and only serves to delude the public into believing that everything is hunky-dory. Bad bank is a bad idea, period. It is another variant of cleaning up the balance sheet this time round by banishing the offending bad loans into the arms of a so-called specialist in recovery at a huge discount. The bottom-line of course is loss and waiting in eternity for payments on the back of recoveries by the bad bank to trickle in. The Insolvency and Bankruptcy Code (IBC) another initiative of the Narendra Modi government when Arun Jaitley was at the helm of the Finance Ministry hasn’t worked beyond dethroning the defaulters from the saddle with haircuts often in the range of 90 percent. A company taking over the reins of the one in dire straits extracts its pound of flesh.

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