Wednesday, November 16, 2016

833 Govt. of India should amend Banking Regulation Act to make Bank Balance Sheets more transparent

Here is a news report from Indian Express.Com which indicates that State Bank of India has written off bad debts of Willful Defaulters, to the extent of Rs. 7,016 crore (Rs.70.16 billion) or approx. $1.2 billion. Click here to go to Indian Express and study the news Of this, the largest chunk of Rs. 1,201 crore or approx.$200 million, goes to Mr. Vijay Mallya of KingFisher Airlines. Here is a quote from the News Report:--

"... The clean-up saw the bank forgo almost Rs 1,201 crore in dues owed by Vijay Mallya’s defunct Kingfisher Airlines, which heads the list of wilful defaulters. Documents accessed by DNA reveal that 63 accounts have been fully written off, 31 partially written off and six have been shown as NPAs. SBI adjusted its balance sheets by moving the Rs 7,016 crore to an Advance Under Collection Account (AUCA). The top wilful defaulters include KS Oil (Rs 596 crore), Surya Pharmaceuticals (Rs 526 crore), GET Power (Rs 400 crore) and SAI Info System (Rs 376 crore). ..."

Mr. Arun Jaitley has tried to pacify people that the advances have not been waived, as goes the popular belief created by Media. In a way, we cannot blame Media for their lack of knowledge about the Indian Banking Procedures. In reporting crucial large-scale financial matters, Media will have to understand the implications first. Else, there is a danger of people getting panicked and they may blame the Bureaucrats, Government, and the Politicians.


IN case of 'write-off' a portion of the profit is set aside for Bad and Doubtful Debts. Else, there will be a danger of showing bad and doubtful debts on the assets side of Balance Sheets of Banks. Then Bank Balance sheets become obase with fat, consisting of sick assets. After writing off, banks' balance sheets lean, because only healthy assets are shown.

This may be a standard global banking practice, which Indian Banks have to adhere to, if they have to participate in International Transactions. Else, foreign banks and suppliers/buyers may raise objections about Letters of Credit/Guarantees / other Indemnifying Commitments offered by Indian Banks. Presenting healthy balance sheets is an International Banking Need. To that extent, Mr. Arun Jaitley will be justified in saying that there is no waiver, but there is only a write off.

When a write off is made, though the items have been removed from the balance sheets of Banks, the Banks have a responsibility to recover the written-off debts through appropriate legal processes. Writing-off does not absolve Banks from their responsibility to recover the dues, unless they are 100% certain and definite that the debts can never be recovered.


Though we may probably not find a provision in Banking Regulation Act, that Banks should publish cumulative lists of off-balance sheets, written-off debts every year, it must be done. Lest, there should emerge a danger of Banks forgetting the off-balance sheet dues. This historical list should start from the date of establishment of the Bank. Banks should also place the Book on their websites for permanent reference. We should, now, have these lists, at last from August 15, 1947. Even if Banks forget recovery of written-off debts, people should not forget, Govts., RBI should not forget.

If necessary Banking Regulation Act should be amended, to permit Banks to publish their books of Written-Off debts.

To continue. सशेष. సశేషం.

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