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Bad loan of 68000 Crore written off: Revisiting the Anatomy

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The news about the huge write off comes amid the lockdown when the union government is working hard to guard the interest of different stakeholders from the catastrophic effect of COVID pandemic and grabbing a reasonable attention in lutyens lobbies of politician, academician and media. The scathing attack on the government started on 24th April 2020, when RBI in a RTI reply admitted to writing off a staggering amount of 68,607 crore due from the willful defaulter. In a way to mislead the common people, Congress leader Rahul Gandhi accused the government of waving a loan worth 68000 crore of top 50 willful defaulters at the time of distress and adopting a step motherly attitude towards poor farmers. Many opposition leaders also lashed out at Centre’s decision for showing more concern to willful defaulter than the common man affected by the lockdown. Congress spokesperson Randeep Singh Surjewala in this recent video conference conveyed that “This is a classic case of promoting dupe, deceive and depart policy of the government and no longer accepted.” He also referred as a case of misconceived priorities and dishonest intention. 

In similar lines, the decision was also opposed by JDS leader H.D Kumaraswamy. While launching an attack over the Centre, he blamed the government to keep silence over the demand of the state to announce economic packages and use the fund to protect the interest of big industrialists. Evidently, the decision to write off the bad loans has been under constant criticism from the opposition and more or less only representing their political agenda.  This act of sensationalizing the facts not only misleads the peoples but also demands to revisit the debate with some economic perspective.  

Undoubtedly, the media and opposition have been mixing up two terms that is ‘Loan waiver’ and ‘Loan write off’ from very long time and hence creating a lot of ambiguity in the mind of common people. Writing off a loan simply used to clean the balance sheet of banks and applied in case of bad loans considering that it does not have any future value. A non-performing asset (NPA) is written off when no avenues of recovery left and chances to realize anything further seem remote. In addition to this, loan write off does not deny banks the right to recover the money from the borrower. However the loan waiver is entirely different from writing off as it is the cancellation of recovery and refraining from claiming the dues.

In the time, when the whole world is fighting with the unprecedented situation and all intervention by the government to contain the virus has a long term economic implication. The well undertaken steps of government to write off the bad loan seems important to develop the sense of confidence needed in our financial system. The decision is crucial as a massive economic crisis is being projected in the post COVID period by many international agencies and hence expedite the need to keep our financial system healthy so that the country can move forward. However, it does not mean that loan is waived off. Also the recent provision made for NPA’s is the outcome of the four year Provisioning Cycle laid down by the regulator RBI. The data suggests, through a similar process a loan of 1.45 lacks crore has been written off in UPA regime by the scheduled commercial banks.

On the problem of “willful defaulter” it is equally relevant to understand their origin and classification. A company is classified as willful defaulter, if it has not met the repayment obligation despite having capacity to pay although if we revisit the past, it is very pertinent that most of them are basically benefitted in UPA regime. Even in one of the responses to parliamentary panels, former governor of RBI Raghuram Rajan indicates most of the bad loans problem that ravaged banks to the period from 2006-2008 when the congress was in power and were given to the promoter with the history of default.

Additionally, Congress not only alleged the government to favor the top most defaulters like Nirav Modi, Mehul Choksi and Vijya Mallaya whose loans are technically written off but also accused for waving off loan worth rupees 6 lacks crore in their regime. Contrary to this, the figures paint an absolutely different picture. Data suggests at present, the government is pursuing 9967 recovery suits, 3515 FIR’s and invoking Fugitive Amendment Act against these willful defaulters. The other recovery step include auctioning of various assets and possessions. Till now, the total value of attachment and seizures in the cases of the top most defaulters is 18332.7 crores. Also through the series of tweets, Finance Minister Nirmala Sitharaman attempted to clarify the rumors against the government and requested the opposition for not referring the report out of context. She further conveyed in her tweet that extradition request has been made to countries where defaulters are living in. 

To conclude, in the time when we are supposed to show solidarity, the intention of government should not be questioned. Given the prolonged impact of lockdown, the government not only announced an economic package for the industrial sector but intensively working to help the farmers and labors also. Already a relief package of 1.70 lakh crore was announced to benefit at least 80 crore poor people. However for long term wellbeing of a country, to revive the financial system is simultaneously important. Irrespective of all the liquidity measures, investors are plunging out their money and hence validate to write off the bad loans. It should be further noted that an efficient and sound financial system not only foster the economic growth of a country but also impact the existence of a company which can be seen as a major source of employment. With the recent report of ILO, where they estimated the massive job loss in the post COVID period, the decision to uplift the economy needs to be appreciated.  

Author: Dr. Neha Nainwal is teaching in Lakshmibai College, University of Delhi

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