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.

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