Speaking at a FICCI meeting yesterday, Mr. Modi absolved himself of all responsibility in the NPA mess of the banking sector and declared that the UPA government alone was the culprit of this crisis. He claimed that the UPA pressurised the banks into lending large amounts to select corporates, thereby creating the current crisis. Mr. Modi then cast himself in the role of a saviour who is trying to clear up the mess not of his making.
No doubt Mr. Modi is right in accusing the UPA government of forcing the banks to give risky loans to select corporate groups. But, how right is he in absolving himself and his government of any responsibility?
Let us look at some of the known facts.
As on March 31, 2017, the total NPAs of the banking sector stand at more than Rs. 7 lakh crores. Yet, it is estimated that the actual bad loans of the banking sector are about Rs. 15 lakh crores. This is more than double of the officially declared NPAs.
One of the main reasons why much of these bad loans have not yet been declared NPAs, is an important decision that has been taken immediately after Mr. Modi assumed power at the centre. In July, with in two months of the BJP government assumed power, RBI introduced a scheme called 5/25 scheme. This scheme allowed banks to refinance and restructure the bad loans of many of the big corporates. The payment period for these bad loans has been extended to 25 years from original maturities of 10 years or so.
This has come as a boon to many of the big corporates, which were under pressure to pay back their loans. And by a strange coincidence of fate, Mr. Adani - a close industrial buddy of the prime minister, who also generously lends his aircrafts for Mr. Modi’s travels – was a beneficiary of this scheme. Rs. 15,000 crore worth loans of two of his power companies, Adani Power Mahrashtra and Adani Power Rajasthan, were refinanced under this scheme. The loan repayment period was extended for the original 10 years to 20 years, with a 15-month moratorium on the interest payments.
Incidentally, the Directorate of Revenue Intelligence (DRI) accused Mr. Adani of siphoning of Rs. 5000 crore power companies, through a scam of over-invoicing of power equipment imports, and stashing this money in off-shore tax haven.
It seems this is the Modus operandi many of the corporates used, they took loans from banks and siphoned off this money abroad through various scheme like over-invoicing of imports. And, now they claim they don’t have money to pay back their loans.
Mr. Adani is not alone, in benefitting from the 5/25 scheme. There is also Mr. Mukesh Ambani whose privately owned company has been given the benefit 5/25 scheme for its bad loans with payment period extended from 4 years 15 years.
The younger Mr. Ambani, too, was not left out of the BJP government’s generosity. Anil Ambani's group of companies is one of the most indebted corporate group in Indian, at the moment. Just a single company in his corporate group, Reliance Communications (RCom), owes Rs. 14,000 crore to the public sector banks. The loans of Anil Ambani’s Rcom are in default: the rating agencies rated these loans as default, but so far, thanks to government’s generosity, none of these loans are declared NPAs.
What more Modi government has rewarded Mr. Anil Ambani with a Rs. 21,000 crore contract as part of the Rafael arms deal. Mr. Ambani’s company (Pipavav Defence & Offshore Engineering), which was awarded this deal, has a bad debt of Rs. 7,500 crore to the banks and this amount has been restructured after Mr. Modi came in to power.
Obviously, Mr. Modi thinks that those who loot the country’s banks should also be given the country’s defence contracts.
There are more corporates that have benefitted from Mr. Modi’s largesse - Jaypee, Essar, HCC, Gammon and many more names that have not come out in the open.
Clearly, Mr. Modi who accused the UPA government of having forced the banks to give loans to select corporates, is following the same route and bestowing his benevolence on the same select corporates.
If Mr. Modi is really interested in cleaning up the NPA mess, as he claims to be, he should have set up an independent body of investigation in to these scams and initiated criminal action against the wilful defaulters. What prevents the government, which has majority in both the houses, from amending laws on ‘limited liability’ and seize the assets of the billionaire promoters of corporates that have fraudulently defaulted on their loans.
No such intent is visible. Instead, Mr. Modi gave us the FRDI bill which, he claims, is meant to protect the depositors, but whose real intention is to take the depositors’ money to pay for the bad loans of the corporates. With this bill Mr. Modi has proved that he is as good a friend of the corporates as his predecessor.