890 What may be the estimated extent of ACCUMULATED FROM 1947 INDEPENDENCE, off-balance sheet bad debts of Indian Banks?

What may be the estimated extent of ACCUMULATED FROM 1947 INDEPENDENCE, off-balance sheet bad debts of Indian Banks? In calculating this, we have to include both the off-balance sheet bad debts of Indian Private Banks and the off-balance sheet bad debts of Indian Public Sector Banks. Reason: Even Private Banks handle public money. When Private Banks become sick, and suffer from illiquidity and insolvency, Reserve Bank of India, has to come to their rescue, notwithstanding the CRR funds held by Banks in Current Accounts with RBI, and the SLR Funds held by Banks in the form of permitted Investments. Even when the illiquidity and insolvency of Private Banks go beyond the resources available from CRR & SLR, RBI has to save them, by providing funds to them, through whatever methods they may be called, such as "Ways and Means" Advances, Overdrafts, Repos, etc. There is one big difference between "On Balance Sheet Bad and Doubtful Debts" and "Off Balance Sheet Bad Debts". In India, Bank Balance sheets never show openly their live Bad and Doubtful Debts. They only show net amount of debts receivable by them, after deducting provisions for Bad and Doubtful Debts made by them from their profits, to the satisfaction of their Statutory Auditors. Hence, the true bad and doubtful debts of any bank, will be an enigma for outsiders, because it is secret information. If the Statutory Auditors (Chartered Accountants etc. appointed as per law) discharge their duties meticulously and sincerely, and the other Government / RBI Agencies which inspect the assets of Banks attend to their tasks alertly, ordinarily, Indians and the World dealing with those Banks need not worry about Indian Banks. Hence, we can say that there will be no need to worry about On-balance-sheet (secret, but scrutinised by auditors and inspectors), because provisions are made to cover them.

IMPORTANT FEATURE(s) OF THE OFF-BALANCE-SHEET BAD DEBTS OF INDIAN BANKS (BOTH PRIVATE SECTOR AND PUBLIC SECTOR)

For removing these items from their balance sheets, in any particular financial year, banks debit their Profit and Loss Accounts, and close the Loan Accounts of Parties. For that year, profit is shown less. No doubt, this definitely a prudent method.

But, the problem with this method is: Depositors, shareholders, employees, other stakeholders of Banks may never know about the existence of these sleeping loans which cannot be abandoned, simply because Profit and Loss Accounts were debited and removed from the balance sheets. These are like skeletons in cupboards, in the backyard. The borrowers involved (defaulters) also may happily forget about them. Wherever there are court cases for recovery of these debts, the suits will drag on for several years. Not only that, these suits-debts have to undergo three stages for actual recoveries, unless they are covered by a Special Act known as SARFAESI Act, 2002.

MONEY DEBTS WHERE THERE IS NO PRIMARY SECURITY (stocks etc. which are lost with afflux of time), or COLLATERAL SECURITY (lands, buildings etc.)

After obtaining Money Decrees, Banks will have to file Execution Petitions for Enforcement of Money Decrees, Banks must also show assets of the borrowers to be attached, giving details such as House Nos., Survey Nos., extent, boundaries, etc. The Court Ameen or the Official Receivers/Assignees appointed by Courts will not go and search for the assets. Then, auction dates are to be fixed. Parties are to be brought to purchase them above the Reserve Price. For this reason only, in respect of very low value debts, debts to be recovered from small and marginal farmers, poverty-stricken people, Banks abandon such debts, as it will not worthwhile to pursue the legal process.

To continue. सशेष. ఇంకా ఉంది.

762 (Part 7/100 of Indian Economic Enigmas)- How can the bourgeoisie parties act against their own benefactors?

This is in continuation of our blog post No. 760 (Part 6/100 of Indian Economic Enigmas). . Merger of 27 Indian Public Sector Banks into 6 large Banks will only create chaos. Their efficiency will not improve. Here is a Deccan Chronicle.Com News Report which indicates that Centre is likely to ahead with merger of 27 Indian Public Sector Banks in 6 large Banks, as recommended by Shri Vinod Roy, a Former CAG (Comptroller and Auditor General of India). Click here to go to DC & Read the Report.. It appears that State Bank of India, India's and the World's largest Bank in terms of number of Branches, has already started the process of merging into itself its six Associate Banks-- State Bank of Hyderabad, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala, and State Bank of Bikaneer and Jaipur.

In Telugu language, there is a proverb: "picci kudirindi, rOkali talaku cuTTanDi". Approx. English equivalent: "my idiocy (or lunacy, insanity) has been cured. Pl. roll this pezzle around my head". Here, the cured patient is asking his listener to bend the wooden pezzle used for pounding flour and grains in Indian Homes, and roll it around his head like a "head gear". Here, one question arises: picci kudirindA? picci mudirindA? Has the madness been cured? Or has the madness aggravated? This comment, which I am making, may appear to be rude.

Yet, with due respect to the Learned Former CAG who is said to have made some drastic recommendations for cleansing Indian Public Sector Banks, I am tempted to quote another Telugu proverb: "Dabbulu oka cOTa pArEsukoni inkO cOTa vetukkunnaTlu". Approx. English gist: Like a person who has lost money at one place, and who was searching for the lost money at another place. When an onlooker asked the money-loser, why he was searching at that particular place for the lost money, he replied: "Here, there are electric street lights. Where there are lights, we have to search".

Public Sector Banks lost their money, owing to their corruption, inefficiency and recklessness. In spite of that, they may be successful in recouping a part of the lost-monies, if the Legal System, Administrative System (both Central and respective State Governments) help them with earnestness and sincerity. The major drawback, both of the Judicial Systems and Administrative Systems involved in handling Huge Banks dues is: Both of them treat the Public Sector Banks and the Private Sector Banks equally.

The Judicial System treats Public Sector Banks just as ordinary litigants, and on par with private money lenders. Our Government Administrators both in Centre and States, view Public Sector Banks as "miltch cows" when it comes to new loans, and as "intruders and trespasers" when it comes to help the PSBs in Recoveries. Consequently, Public Sector Banks, with regard to the problem of recovery of their bad debts, have become orphans and endless sufferers like "raped women".

This particular blog post will not be spatially sufficient to discuss all the problems involved. First we shall see some of the problems which are said to be, at present, receiving the attention of the Central Government.

"...Stronger banks should decide which of their bad loans to shift off their balance sheets, while weaker banks need fresh capital before a round of consolidation that would cut the number of state banks to no more than six from 27 now. In the current budget, the government has put in about Rs 25,000 crores, but it has not said that this is the end. "

"...Consolidation has already begun with State Bank of India’s move to absorb five subsidiaries and Bharatiya Mahila Bank, a bank for women set up in 2013. ..."

"...More mergers are expected. But no timeframes. Well-performing larger banks could tie up with one another ..."

"... Troubled lenders could be taken over once recapitalised — if they offered good value to suitors. Specifically, Bank of India — the country’s third-largest state bank by assets — would not be considered a merger candidate until it was recapitalised. "

"...State banks trading at just 0.5 times book value, valuations were attractive for minority shareholders to subscribe to planned rights issues, alongside the government. ..."

"... India’s state banks have been reluctant to write down loans, especially to high-profile borrowers like liquor tycoon Vijay Mallya. ... Talks were well advanced on creating a separate mechanism to review such cases and expedite balance sheet cleanups. ..."

"... This mechanism could be a committee, involve an existing joint lenders’ forum, or new guidelines from the RBI ...".

"...No plans to create a “bad bank” to relieve lenders of dud loans. ..."

"...India has more than a dozen asset reconstruction companies, or ARCs, with state banks owning stakes in four. The government has let promoters take full control of ARCs and scrapped caps on foreign direct investment. ..."

"... There is sufficient financial interest to invest in the ARCs. But all are waiting to see whether the PSBs are willing to transfer their stressed assets. "

ybrao-a-donkey's humble comments. वैबीराव एक गधे के विनम्र राय . వైబీరావ్ గాడిద వినమ్ర వాణి. You have every right to differ with me. I respect your right. आपको मेरे मत से भिन्न राय रखने के संपूर्ण हक है। मै उस अधिकार को परिपूर्ण रूप से गौरव देता हुँ. మీకు, మీ భిన్నమైన అభిప్రాయాన్ని కలిగిఉండే సంపూర్ణ హక్కు ఉంది. దానిని ఎంతో నేను గౌరవిస్తాను. However, pl. examine this donkey's views also. परन्तु एस गधे के दृष्टिकोण को भी अनुशीलन कीजिये. కానీ ఈ గాడిద దృష్టికోణాన్ని కూడ ఓర చూపుతో కంటజూడుమీ, క్రీగంట జూడమీ.

Nothing significant can be achieved with the above measures. Merging Banks will only create numerous problems, including resistance from Employee Trade Unions.

SUGGESTIONS

Depending upon Public Sector Bank Overdues workload in each State, at least one new High Court Judge should be appointed to exclusively deal with Public Sector Bank Suits for Recoveries, and Criminal cases for prosecution of cheating borrowers and Bank Executives.

At Supreme Court, there should be at least 10 Judges, to exclusively handle Public Sector Bank Suits for Recoveries, and Criminal cases for prosecution of cheating borrowers and Bank Executives.

Govt. of India should first make necessary Statutes (laws) / ordinances / Constitutional amendments to increase the number of Supreme Court and High Court Judges to exclusively handle PSB cases and suits. If necessary, Special Sessions of Lok Sabha and Rajya Sabha should be held for the purpose. Then, GOI should issue necessary Notifications for executing the Legislations.

Government of India should then pray the Supreme Court Collegium to take up appointments of all the required Judges. When Supreme Court Collegium suggests names, GOI should unconditionally accept the appointments and speed up the whole process.

For each Public Sector Bank, Govt. of India should get a list of DEFAULTERS ACCOUNTING FOR TOP 50% IN TERMS OF AMOUNTS. Govt. of India should then establish a SIT (Special Investigation Team) for each Bank, consisting of Top Lawyers, full-time Special Top Police Officials, full-time Special- Central Govt. Officers, full-time Special- State Govt. Officers, for monitoring the dues. The SITs should have special office in the concerned Public Sector Bank. Case by case reviews should be done everyday.

Wherever, assets are available and can be sold without intervention of courts, they should be sold through Public Auctions without delay. Minimum bid prices should be kept low. Under no circumstances, auctions should not be cancelled repeatedly. Unless there are reasons to suspect foul play, irrespective of whether full market value is realised or not, bids should be accepted, and the amounts realised should be credited to loan accounts with no further delay.

Normally, Public Sector Banks take personal guarantees and personal assets of principal promoters and Directors, in addition to the assets of the Company. Wherever such personal assets and guarantees are available, they are to be enforced immediately. Wherever such personal assets / guarantees have not been obtained as security, the Bank's directors and Top Bank Officials should be held accountable. Where there is gross negligence, or connivance of the Bank Directors and Officials with the Borrowing Company promoters, all of them should be arrested immediately, after booking necessary cases.

Passports of all the defaulting business persons, industrialists, their collaborating bank directors and top officials , should be impounded PROVISIONALLY. Red Alerts are to be sent to Airports, principal Railway Stations, Sea Ports, as an additional precaution.

In case of Court cases, "attachments before judgement" should be obtained not only against the defaulting Company's assets, but also against the personal assets of the Promoters, depending on whether personal guarantee is available or not.

Doing all these things on a war-footing, will send shiverings into the bodies of willful defaulters, and their collaborating Bank Directors and Officials. These campaigns will also work as deterrents against new business and industrial loans becoming bad.

Asset Reconstruction Companies will be useless paper-tigers. They can be closed.

The problem with bourgeoisie parties at Centre is, they want to please the defaulting business persons and industrialists at all costs and by all means. How can the bourgeoisie political parties and leaders act tough against their own benefactors, patrons and fund-givers?

Incomplete. Subject to thorough future revision depending upon availability of evidence.

760 (Part 6/100 of Indian Economic Enigmas): How many Industrial Houses in India are Sand Structures? Let us pray the non-existent God that GMR Empire will not go the Vijay Mallya way.

Here is a Deccanchronicle.com report titled "...gmr group-s founder gm-rao has-a-bad-day..." Click to go to http://www.deccanchronicle.com/business/in-other-news/240516/gmr-group-s-founder-gm-rao-has-a-bad-day.html (print edition tabloid 24.5.2016) . One wishes that it should not happen, but, events in India and the World do not happen or fail to happen, depending on our wishes. Let us WISH that GMR Group will not go the Vijay Mallya way, though there are some similarities and some divergences between the two Groups. Two quotes in this report are worth noting.

"...Rao was not in the best of moods as he was overheard telling one his employees accompanying him to get in touch with a publishing house that had just come out with a not-so-flattering book on the tycoon.

The book labelled him a “business failure” and Rao was furious. “Please write to them immediately and ask them on what basis do they call me a business failure? How can they? Just because we have some debts doesn’t mean that they ignore everything I have done,” he was heard saying. ..."

"...Rao’s next target was the pilot himself. Apparently the landing was not to his liking and Rao, who normally flies in his private jet, decided to have a word with the captain. He was overheard telling the hapless pilot: '...This is not the way to land a plane. I will write to the DGCA about this. ...' One can only wonder how his day went after this.

The GMR Group is said to have debts aggregating Rs. 43,439 crore (Rs. 434 billion).

Question: What are similarities between Mr. Vijay Mallya and GMR ?

Mr. Mallya is owner of IPL Cricket Team Royal Challengers, Bangalore. Shri GMR is owner of Delhi Dare Devils.

Mr. Vijay Mallya promised to donate for making a "gold wall cover" around Lord Venkateswara Temple, Tirupati. Whether this promise is fulfilled or not, Mr. Mallya was said to be donating some kilos of gold to TTD occasionally. Shri GMR is reported to have dedicated his entire shareholding in Infrastructure Sector to Charitable Truts.

Both Mr. Vijay Mallya and Shri GMR own PRIVATE JETS. For that matter, many industrial houses in India and abroad own private jets. Jets are as ESSENTIAL as SUITS AND TIES for BUSINESS PERSONS.

Question: What are dissimilarities between the businesses of Mr. Vijay Mallya and Shri GMR?

Ans: Unless we get complete details of the assets purchased by Mr. Vijay Mallya using moneys sent from India through normal banking channels, and the assets purchased by him using money laundering services, it is difficult to get any clear picture.

As far as GMR Group is concerned, their main investments seem to be in infrastructure sector, in projects such as airport-building, power generation, hotels and resorts. They do not have any investments in breweries. In all fairness to GMR Empire, we must say that while LIQUOR MAKING BUSINESS IS RISK FREE, IT HARMS THE NATION. It is not so with Infrastructure Building. Hence, we should be thankful to the GMR Empire that they have not spread their wings into breweries.

Question: Will it not be safer that Liquor making and selling remains in the hands of Indian Industrialists, rather than their falling into the hands of foreign Companies like Cobra Wines! When liquor making and marketing goes into the clutches of foreign Companies, they may force the entire Nation to compulsorily drink wine instead of water!

Ans: Though your apprehension is prima facie reasonable, as far as the poor man on the Road is concerned, it will not really make any difference. In Telugu language, there is a proverb: "yE rAyi aitE nEmi tala pagula koTTukOTAniki" (approx. English: If our intention is to break our heads, whichever be the stone, it makes little difference.) Granite, marble, Feldspar, everything will be fine. We can break our heads either with Italian Marbles or with Jodhpur Marbles.

TENDENCY OF INDIAN BANKS TO CONCEAL THINGS TILL THE LAST MOMENT, AND THE INDIFFERENCE OF RBI

Here also, banks have a tendency not to make public, details of defaults made by business empires, unless and until things go to the extremely worst state.

Right now it will not be prudent to arrive at hasty conclusions about GMR Group or any other Group in India or abroad.

90% of Indian Industrial Houses whether traditional or modern- i.e. promoted by 1st generation entrepreneurs, are not sky-scrapers. They are SAND-SCRAPPERS i.e. built with sand dunes. When our great sand sculpture artist of Puri Shri Sudarsan Patnaik makes sand structures on the banks of Bay of Bengal, we know pretty well that they are just made of sand. Whereas, in case of our industrial houses (both Indian and non-Indian), such pre-knowledge or prior-awareness is not possible. This is because our Chartered Accountant Firms which audit our industrial houses, are not Chitra Guptas who always remain loyal to Lord Yama instead of the Creatures. Our Chartered Accountant Firms are more loyal to their paymasters i.e. the promoters and the de-facto guys (need not necessarily be owners!) who drive our industrial empires, and they may not bother even to know that stake holders (small share holders, employees, creditors, suppliers, banks and Mutual Funds, Trusts, et al) exist. Recall what the overseas audit house and its Indian Organ had done in the audit of Satyam Computers.

Top-to-bottom Managers of our Indian Public Sector Banks may have a strong desire and will to supervise the disbursement and end-use of the funds they sanction to industrial houses. They may also have a strong urge to follow up their advances to industrial houses with meticulous care. But, they do not have the wherewithal to supervise and follow-up. Our Public Sector Banks neither have the manpower, nor the equipment and systems to monitor the end use. Hence, once a credit limit is granted to a very large business empire, the PSBs will have to remain mute spectators, even if they know that funds are being lavishly frittered away or being diverted. Then, every year, or every two years the Banks have to renew / review the credit limits which is done in a routine manner, by increasing the loan amount to take care of the old loan plus interest. It will be sufficient for the industrial borrowers to show some highly-overvalued, apparently-though-not-really tangible immovable properties as security, and sign all the loan documents on dotted lines, affixing the Company seal. For that work, the Company's CFO and Company Secretary will help. What for are they?

In case of Private Sector Banks, things appear to be more hazy. The top bosses of the Private Banks and the top bosses of the Industrial Houses, may be personal friends, distant relations, mates in Clubs and Pubs. They may even be sharing same film stars or girls. All the industrial loans and large business loans made by Private Sector Banks have not really been tested (are not being tested) for their liquidation. Truth will come out only when a forced sale takes place.

It is not possible in one blog post, to examine the entire evolution and rot in the Indian Banking, Insurance and Finance Sectors. We may need a thousand blog posts.

There will also no point in blaming only the Vijay Mallya or the GMR Empire or some other Industrial House. All the Business Houses and Industrial Houses in India need deeper probes, about their Financial Management, using the services of dedicate teams of Audit and Inspection (not from the existing Tribe of Auditors). Thousand Justice Lodhas will be necessary to cleanse the mess.

To temporarily close this blog post, let us wish, and pray the NON-EXISTING GOD, that GMR Infrastructure Empire will not go in the same route, trajectory and way as the Vijay Mallya Empire.

Incomplete. Subject to thorough future revision depending upon availability of evidence.