Bank’s performance is always the reflection of the country’s economy. Though results are not out for the financial year 2019-20, analysis shows that many banks will be showing a huge loss. The last quarter which normally sees huge increase in advances did not happen. The deposits of all scheduled banks as on 27th March 2020 stood at Rs.13979593.78 Cr and borrowings from RBI was only Rs.286442.99 Cr. The bank credit stood at Rs.10707690.81 Cr only (RBI). So banks really don’t need any additional liquidity from RBI.

Already loans to MSMEs were not allowed to be declared as NPAs. When demonetisation was announced the deposits were Rs.136.71 trillion which has grown only to Rs.139.79 trillion in 3 ½ years. Normally the growth should have been at least 10% per year and at that rate the savings should have reached Rs.184.84 trillion but stands at Rs.139.79 trillion. This shows that people are not depositing in banks as they used to probably because of lowering of deposit interest and loss of faith which started with DEMO 2016.

SBI has now reduced savings bank interest rate to 2.7%. Today the banks still have surplus funds which is deposited in RBI for a paltry 3.75% or 3.4%. Banks are not able to lend, not because of fear of CBI, CVC or CAG as the Finance Minister thinks. It is because the bankers are worried about the loans going bad.

Now the Finance Minister has announced a new Loan guarantee scheme called National Credit Gaurantee Trustee Company Ltd (NCGTC)when another scheme called Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) is already available. She claims that 100% guarantee will be given for Rs.3 lakh Cr Loan with a guarantee fee of Rs.4000 Cr which alone will be provided by the government this year and the government itself is anticipating 15% NPA and Rs.41600 fund will be created. The experience with MUDRA Loans is that with in 4 years more than 60% of the loans have gone bad but they are still classified as Standard Assets. As per GoI data upto March 2020, banks/NBFCs have sanctioned 20.51 crore borrowers Rs.10.5 Cr. Already RBI governor has asked bankers to be cautious on MUDRA loans as reported in ET. RBI itself modified the NPA classification norms for MSMEs so that these loans are not declared as NPA. Outstanding loan to MSMEs as on March 2019 is Rs.17.4 lakh Cr. But how long you can hide NPA? MSMEs require an environment to grow, which does not exist. So banks are sitting on a time bomb. This is in addition to the corporate NPA. Banks have also financed non-banking finance companies with Rs.8.19 Lakh Cr as on March 20 due to pressure from Finance Minister. So most of these loans are going to become toxic assets as it happened in US Mortgage loans.

The Finance Minister has stated that she will review performance of MDs of banks every week. So the banks will be asked to finance the rich. Already the classification of MSMEs have been changed to help corporates and Manufacturing & Services Industry have been clubbed. So the banks will close the existing loans of corporates under MSME and gives as Covid loan with enhanced limit. The present loans will become regular and the target will be achieved. But these loans are going to turn bad and become Non Performing Assets sooner or later because the fundamentals are weak. There is no investment by government to boost the economy. Economy as per RBI governor himself is in negative growth and loans alone will not boost the economy. Anyway without Finance Minister also banks should lend at least 10 lakh Cr this financial year which is the average growth of 10%. 

The danger is

  1. Existing NPAs are declared as standard for one more year.
  2. No recovery proceedings with NCLT for one year.
  3. There is a general tendency that these loans need not be repaid.
  4. FSDRB bill can lead to a run on banks.
  5. If the deposits get reduced banks will find it difficult to give fresh loans which will trigger a crisis.

Already banks have around Rs.10 Lakh Cr as NPA.  Even if an additional 10% is added it will be more than Rs.20 Lakh Cr in one year. That will be dangerous. The banks will have to be recapitalized. The government does not have money to pump in as US and Europe did during the 2008 Crisis. Some banks will fail. The government will use this as another opportunity like the way it uses Covid 19 and privatise the banks. This seems inevitable unless the people of the country understand and stand up now and discuss, debate and demand what is needed for the economy and the people. Not the 10% people but the 90%.

Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.

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