Bad Loans

Banks having a bad time, as King of Good Times celebrates his sixtieth birthday

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A few days back sections of the media reported that Vijay Mallya, a part-time businessman and a full-time defaulter of bank loans, had celebrated his sixtieth birthday by throwing a huge party at the Kingfisher Villa in Candolim, Goa.

As the Mumbai Mirror reported: “International pop icon Enrique Iglesias belted out his 2014 chartbuster ‘Bailando’ (Dancing) hours after Sonu Nigam completed a nonstop two-hour session with ‘Tum jiyo hazaron saal, saal ke din ho pachaas hazaar’.”

This is while banks wait to recover thousands of crore of loans that Mallya has defaulted on, in his quest to own and run an airline.

While Mallya and other industrialists continue to have a good time, the bad loans of banks continue piling up. The Mid-Year Economic Analysis released by the ministry of finance last week points out towards the same. As it points out: “Gross Non Performing Assets (NPAs) of scheduled commercial banks, especially Public Sector Banks (PSBs) have shown an increase during recent years.”

The total bad loans (gross non-performing assets) of scheduled commercial banks increased to 5.14 % of total advances as on September 30, 2015. The number had stood at 4.6% of total advances, as on March 31, 2015. This means a jump of 54 basis points in a period of just six months. One basis point is one hundredth of a percentage.

The situation is much worse in public sector banks.  The total bad loans of public sector banks stood at 6.21% of total advances as of September 30, 2015. This number had stood at 5.43% as on March 31, 2015. This is a huge jump of 78 basis points, within a short period of six months. The number had been at 4.72% as on March 31, 2014. This tells us very clearly that the bad loans situation of public sector banks has clearly worsened.

In fact, we get the real picture if we look at the stressed assets of public sector banks. The stressed asset number is obtained by adding the bad loans and the restructured assets of a bank. A restructured asset is an asset on which the interest rate charged by the bank to the borrower has been lowered. Or the borrower has been given more time to repay the loan i.e. the tenure of the loan has been increased. In both cases the bank has to bear a loss.

The stressed assets of the public sector banks as on September 30, 2015, stood at 14.2% of the total advances. Hence, for every Rs 100 of loans given by public sector banks, Rs 14.2 are currently in dodgy territory. In March 2015, the stressed assets ratio was at 13.15%. This is a significant jump of 105 basis points. In fact, if we look at older data there are other inferences that we can draw.

In March 2011, the number was at 6.6%. In March 2012, the number grew to 8.8%. And now it stands at 14.2%. What does this tell us? It tells us very clearly that banks are increasingly restructuring more and more of their loans and pushing up the stressed asset ratio in the process. And that is not a good thing. The banks are essentially kicking the can down the road in the hope of avoiding to have to recognise bad loans as of now.

In a research note published earlier this year, Crisil Research estimates that 40% of the loans restructured during 2011-2014 have become bad loans. Morgan Stanley estimates that 65% of restructured loans will turn bad in the time to come. What this tells us very clearly tells us that a major portion of stressed assets are essentially restructured loans which haven’t been recognised as bad loans.

This clearly tells us that the balance sheets of public sector banks continue to remain stressed. Data from the Indian Banks’ Association shows that the public sector banks own a total of 77.4% of assets of the total banking system. This means they dominate the system. And if their balance sheets are in a bad shape it is but natural that they will go slow on giving ‘new’ loans. As the latest RBI Annual Report points out: “Private sector banks with lower NPA ratios, posted higher credit growth …At the aggregate level, the NPA ratio and credit growth exhibited a statistically significant negative correlation of 0.8, based on quarterly data since 2010-11.”
As the accompanying chart clearly points out the loan growth of private sector banks which have a lower amount of stressed assets has been much faster than that of public sector banks.
Source: RBI Annual Report

Also, it is worth asking here why are public sector banks continuing to pile up bad loans. The answer might perhaps lie in the fact that the interest paying capacity and the principal repaying capacity of corporates who have taken on these loans continues to remain weak. As the Mid-Year Economic Review points out: “Corporate balance sheets remain highly stressed. According to analysis done by Credit Suisse, for non – financial corporate sector (based on ~ 11000 companies in the CMIE database as of FY2014 and projections done for FY2015 based on a sample of 3700 companies), the number of companies whose interest cover is less than 1 has not declined significantly (this number was 1003 in September 2014 and is 994 in September 2015 quarter).”

Interest coverage ratio is arrived at by dividing the operating profit (earnings before interest and taxes) of a company by the total amount of interest that a company needs to pay on what it has borrowed during a given period. An interest coverage ratio of less than one, as is the case with many companies in the Credit Suisse sample, essentially means that the companies are not making enough money to even be able to pay interest on their borrowings.

Further, “the weighted average interest cover ratio has declined from 2.5 in September 2014 to 2.3 in September 2015 (research indicates that an interest cover of below 2.5 for larger companies and below 4 for smaller companies is considered below investment grade).”

Given this, it is not surprising that bad loans of banks continue to pile up, while guys like Mallya continue to have a “good time”.

Postscript: I will be taking a break from writing The Daily Reckoning for the next few days. Will see you again in the new year. Here is wishing you a Merry Christmas and a very Happy New Year.

The column originally appeared on The Daily Reckoning on December 24, 2015

Does The RBI Really Think Banks Are Cleaning Up Their Balance Sheets?

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The fifth monetary policy statement for the current financial year (2015-2016) was released by the Reserve Bank of India (RBI) earlier this week. In this statement the RBI points out that since the beginning of this year, the repo rate has been cut by 125 basis points (one basis point is one hundredth of a percentage). Repo rate is the rate at which RBI lends to banks and acts as a sort of a benchmark to the interest rates that banks pay for their deposits and in turn charge on their loans.

When the RBI cuts the repo rate it is expected that the banks will follow suit. As banks cut interest rates, the expectation is people will borrow more. But that doesn’t seem to have happened. Bank lending growth has continued to be in single digits. While the RBI has cut the repo rate by 125 basis points, the bank have cut their interest rates by only 60 basis points, which is less than half of RBI’s cut.

One of the reasons for this is that the bad loans have been piling up at banks, especially public sector banks. This hasn’t allowed banks to cut interest rates at the same pace as the RBI has cut the repo rate. Higher interest rates are being used to generate income which can compensate for losses on account of bad loans.

The RBI in the monetary policy statement is hopeful that “the on-going clean-up of bank balance sheets will help create room for fresh lending.” What this means is that once banks are able to clean up their balance sheets i.e. bring down their bad loans, they will be able to lower their interest rates and in the process greater lending will happen.

But how likely is this? The RBI declares the sectoral deployment of credit data every month. In this it gives out details of how much money was lent by banks to different sectors of the economy. Between October 2014 and October 2015, the banks have lent around Rs 1,15,800 crore to industry. This is an increase of 4.6%. Between October 2013 and October 2014, the lending to industry has gone up by 7.8%.

So far so good. Within industry, banks have lent Rs 73,500 crore to the infrastructure sector. Within the infrastructure sector, banks have lent Rs 55,600 crore to the power sector. Lending to iron and steel increased by Rs 22,200 crore between October 2014 and October 2015.

Hence, lending to the power sector and iron and steel sector was at Rs 77,800 crore. Given this, nearly two-thirds of all industrial lending by banks during the last one year has been to power and iron and steel companies. If we consider the entire infrastructure sector along with the lending to the iron and steel companies, then banks have carried out 82.6% of their industrial lending over last one year to companies operating in these sectors.

And why is that a problem? The RBI Financial Stability Report, which is released twice a year, with the last edition being released in June earlier this year, points out: “Five sub-sectors, namely, mining, iron & steel, textiles, infrastructure and aviation, which together constituted 24.8 per cent of the total advances of scheduled commercial banks, had a much larger share of 51.1 per cent in the total stressed advances. Among these five sectors, infrastructure and iron & steel had a significant contribution in total stressed advances accounting for nearly 40 per cent of the total.”

The power sector is a part of the infrastructure sector and a big defaulter of bank loans. Power sector loans form a little over 8% of total banks loans. Nevertheless they form 16.1% of the stressed advances.

Stressed advances are essentially gross non-performing assets (or bad loans) of banks plus restructured loans divided by the total assets held by the Indian banking system. The borrower has either stopped to repay this loan or the loan has been restructured, where the borrower has been allowed easier terms to repay the loan by increasing the tenure of the loan or lowering the interest rate.

What does this tell us? Basically 40% of the stressed advances of banks come from companies operating in the infrastructure and the iron and steel sectors. Ironically, banks have carried out more than 80% of their industrial lending to companies operating in these sectors, in the last one year.

Hence, banks are lending money precisely in those sectors where they have been losing money. Why are they doing that? A possible explanation is that new loans are being given so that the older loans that are falling due can be repaid. The companies operating in these sectors do not have the money to repay the loans they had taken on. In the process, the problem of recognising bad loans can be controlled, and the banks can kick the can down the road.

As the Financial Stability Report points out: “The debt servicing ability of power generation companies [which are a part of the infrastructure sector] in the near-term may continue to remain weak given the high leverage and weak cash flows. Banks, therefore, need to exercise adequate caution while dealing with the sector and need to continue monitoring the developments very closely.” What explains banks giving out more loans precisely to these companies?

With regard to the iron and steel sector the report had said that “the sector holds very good long term prospects, though it is currently under stress, necessitating a close watch by lenders.”

In fact, despite giving out fresh loans to the troubled sectors, the bad loans of banks have been on their way up. A recent newsreport in the Mint pointed out that bad loans of banks had risen to Rs 2,85,000 crore as on September 30, 2015. This was 22.9% higher than the total bad loans of banks as on September 30, 2014.
A report in The Indian Express puts the bad loans of banks at Rs 3,36,685 crore as of September 30, 2015. This is a rise of 27% from last year.

The RBI governor Raghuram Rajan recently said: “I want to put something like March 2017 on the table as when we hope that a full clean-up will have been done.” Is he being a little too optimistic here? That only time will tell.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared on HuffPost India on Dec 3, 2015

Corruption in bank lending starts at very beginning

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“Anyone with any sense had already left town…” – Bob Dylan in Lily, Rosemary and the Jack of Hearts

In the Daily Reckoning newsletter dated September 9, 2015, I had extensively quoted a survey carried out by EY. In this survey 64% of respondents believed that the bad loans of banks resulted primarily because of lapses in the due-diligence carried out by the banks, before the loans were sanctioned.
As the report which came along with the survey pointed out: “Third party agencies such as surveyors, engineers, financial analysts, and other verification agencies, etc., play a critical role in assuring financial information, proposals, work completion status, application of funds, etc. Lenders rely significantly on the inputs issued by such third parties.”

And this system is being manipulated. “Reports are made as a routine, with little scrutiny. In some situations, the reports may be drafted under the influence of unscrupulous borrowers,” the EY report pointed out.

In response to the column someone with a detailed knowledge of the loan processing and disbursal process of banks got in touch with me. He gave me two examples of the loan disbursal system being manipulated. This ultimately led to several banks ending up with bad loans.

The first case was of an unlisted entity in the business of manufacturing luggage, borrowing from two big public sector banks. The promoter of the company offered his equity in the company, as well as land and the factory, as a collateral. This transaction took place in 2007. The valuation report by a third party agency put the combined value of all the assets at Rs 35 crore. Against these assets the banks gave a loan of around Rs 27 crore. The promoter took this loan. He also borrowed Rs 3 crore more from the banks.

Later another valuer was brought in to examine the value of the assets, and the value of the assets was put at a much lower Rs 19 crore. The old valuer was dismissed but by then the damage had already been done. The company had given out a loan of Rs 30 crore against assets which were worth only Rs 19 crore.

Ideally the situation should have exactly been the other way around.

The second case involves a listed company in the building materials space. The company came out with an initial public offering in 2008-2009. The company was listed at a three digit price. Currently, the price of the stock is in lower single digits.

The company took loans amounting to Rs 325 crore from two big public sector banks and one of the bigger new generation private sector banks. The promoter did not stop at this. He borrowed more using his other listed entities as well. In 2013, he defaulted on the loans citing slowdown in construction activity.

Now he owes banks around Rs 1000 crore to the banks. The book value of the assets that banks have as a collateral is around Rs 225 crore. The market value is expected to be in the region of Rs 325-350 crore. The rest of the money was lent by banks against shares, which are now quoting in single digits.

In both the cases, the banks ended up with losses. Both the companies that we talked about are not very big companies and they were able to do so much damage to banks so easily. Now imagine what must be happening when the banks deal with the bigger corporates.

The Reserve Bank of India (RBI) governor, Raghuram Rajan, summarised the situation accurately in a speech last year when he said: “The promoter enjoys riskless capitalism – even in these times of very slow growth, how many large promoters have lost their homes or have had to curb their lifestyles despite offering personal guarantees to lenders?” Almost none.

In fact, these defaults have pushed Indian banks into a difficult situation. As R Gandhi, one of the deputy governors of the RBI, said in a speech he made on September 15: “The amount of non-performing assets [have] witnessed [a] spurt and as on March 2015, it was at 4.62. per cent of the gross advances of the banks in comparison with 2.36 per cent of the gross advances as at March 2011.”

Further, non-performing assets or bad loans have grown at a much faster pace than the overall lending in the last few years. Along with the growth in bad loans, as I have often pointed out in the past, the restructured assets (where the tenure of the loan or the interest on the loan has been changed in favour of the borrower) have also grown.

As Gandhi pointed out: “The ratio of restructured standard assets to gross advances grew to 6.44 per cent as at the end of March 2015 from 5.87 per cent of gross advances as on March 2014. The total stressed assets (i.e., NPAs plus Restructured Assets) as on March 2015 were 11.06 per cent of gross advances.”

All this has had a severe impact on profitability of banks. “The sharp increase in stressed assets has adversely impacted the profitability of the banks. The annual return on assets has come down from 1.09 per cent during 2010-11 to 0.78 per cent during 2014- 15,” Gandhi said.

This has become a drag on the economy. The increase in bad loans and restructured assets also hurts those borrowers who have been repaying their loans without fail, as they end up paying higher interest rates. As Rajan said last year: “One consequence of skewed and unfair sharing is to make credit costlier and less available. The promoter who misuses the system ensures that banks then charge a premium for business loans.” Hence, the next time the businessmen want the RBI to cut interest rates, they should understand they are a major part of the problem.

Other than the fact, that the banks lent more money than they should have [i.e. due-diligence wasn’t proper], they also did not monitor the loans properly. In cases where money had been lent against shares, the falling share price should have led to some action from banks. But that doesn’t seem to have happened.

The RBI has since asked banks to follow a proper credit-risk management system. As Gandhi said during the course of his speech: “The guidelines entail involvement of top Management, including the Board of Directors of the bank in actively managing the credit risk of the banks. Banks are required to put in place proactive credit risk management practices like annual / half-yearly industry studies and individual obligor reviews, credit audit which entails periodic credit calls that are documented, periodic visits of plant and business site, and at least quarterly management reviews of troubled exposures / weak credits.”

While this will help banks in not making the same mistakes as they have in the past, it will do nothing about the mess that they already are in. For loans that have gone bad already or are in the process of going bad, all these steps are essentially too little and too late.

The column originally appeared on the Daily Reckoning on Sep 18, 2015

The real story behind the bad loans of Indian banks

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In several previous columns in The Daily Reckoning newsletter, I have talked about the bad loans that are accumulating with banks in general and government owned public sector banks in particular. A major portion of these bad loans is from corporates who had borrowed and are now not repaying the loans.

A standard explanation from the corporates is that these are tough times for the economy and given that they are not in a position to repay. The trouble is that this is not always true. As a recent research brought out by EY and titled Unmasking India’s NPA issues – can the banking sector overcome this phase? points out: “While corporate borrowers have repeatedly blamed the economic slowdown as the primary factor behind it[i.e. defaulting on bank loans], periodic independent audits on borrowers have revealed diversion of funds or wilful default leading to stress situations.”

Nevertheless, despite many wilful defaults, banks don’t declare such defaulters as wilful defaulters. The RBI defines “wilful default” as a situation where a borrower has defaulted on the payment/repayment obligations despite having the capacity to pay up. Or the borrower hasn’t utilised the loan amount for the specific purpose for which the loan was disbursed and diverted the money for other purposes. Or the borrower has siphoned off the funds. Or the borrower has defaulted on the loan and at the same time sold off the immoveable property which acted as the collateral against which the loan had been granted.

The EY report explains quoting bankers, why banks and bankers don’t declare borrowers as wilful defaulters: “It is more or less certain that if we declare a borrower a “wilful defaulter,” he will approach the court. Then it becomes our responsibility to justify our action with supporting evidence. It is not always possible to establish that the borrower has siphoned off the money or used it for a purpose other than the one which loan has been taken. Hence, we need to be extremely cautious before we declare someone a “wilful defaulter.” Otherwise, we will not only lose the case, but we will also let the defaulter off the hook.”

What the survey does not point out is that unlike the corporate defaulters, public sector banks do not have the best lawyers on their speed dial.

As on December 31, 2014, the top 30 defaulters accounted for nearly one third of the bad loans of close to $47.3 billion, which is clearly worrying. Also, many high value loans have gone bad. And they keep piling up. In fact, in a survey carried out by the EY Fraud Investigation & Dispute Services found that 87% of the respondents that included bankers stated that diversion of funds to unrelated business through fraudulent means is one of the root causes for the NPA crisis.

Also, 64% of respondents believed that these bad loans resulted primarily because of lapses in the due-diligence carried out by banks before the loans were sanctioned. In fact, the report also talks about third party agencies that banks need to depend on while figuring out whether a borrower is good enough to be lent money to, as well as what he is doing with that money, once the loan has been given out.

As the report points out: “Third party agencies such as surveyors, engineers, financial analysts, and other verification agencies, etc., play a critical role in assuring financial information, proposals, work completion status, application of funds, etc. Lenders rely significantly on the inputs issued by such third parties.”

The trouble is that the system can and is being manipulated. “Reports are made as a routine, with little scrutiny. In some situations, the reports may be drafted under the influence of unscrupulous borrowers,” the EY report points out.

For the entire process of loan disbursal as well as monitoring mechanism to work well, the third party system needs to work in a transparent manner, which it currently doesn’t. As per the EY survey, two out of the three respondents agreed that third party reports could be manipulated in the favour of the borrower.

Further, 54% of the respondents attributed the bad loans to the inefficiencies in the monitoring process, after the loan had been given out.

And if all that wasn’t enough 72% of the respondents claimed that the crisis in banking because of bad loans is set to worsen before it becomes better. The reason for this is very simple—many loans which have gone bad have not been recognised as bad, and instead have been restructured i.e. the borrower has been allowed easier terms to repay the loan by increasing the tenure of the loan or lowering the interest rate.

As the EY report said quoting the bankers who had participated in the survey: “The stressed accounts that have been hidden till now would keep the NPA [non-performing asset] level rising at least for the next 2-3 years.” In simple English what this means is that many restructured loans will turn bad in the years to come, as borrowers will default.

The EY report further pointed out: “The reported numbers are quite high, and there are fresh additions every quarter, leading to further deterioration in asset quality. The portfolio of restructured accounts is adding to the problem at hand, thereby resulting in crisis.”

In fact, the corporate debt restructuring numbers have jumped up big time over the last few years. The number of cases has jumped from 225 to 647 between 2008-09 and December 31, 2014. This is a jump of 187%. In fact, in terms of the amount of loans, the jump is 370% to over Rs 450,000 crore.

The bankers that EY survey spoke to made several interesting points. Several borrowers go through the corporate debt restructuring mechanism just to ensure that they can drive down the interest rates on their loans or increase the repayment period. Also, even in cases where the borrower is in trouble nothing really comes out of the restructuring scheme. As the report points out: “These schemes are often used to soften the pricing terms, elongation of repayments, without improving the basic viability of the business.”

What all this clearly tells us is that the Indian banking system will continue to remain in a mess over the next few years, as restructured loans keep turning into bad loans.

Stay tuned and watch this space.

This column originally appeared on The Daily Reckoning on Sep 9, 2015

Indradhanush Framework: A Missed Opportunity For The Modi Government

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Earlier this month, the ministry of finance recently came up with the seven step Indradhanush framework to transform the shape of the government owned public sector banks (PSBs). As the press release accompanying the announcement of the framework pointed out: “Indradhanush framework for transforming the public sector banks represents the most comprehensive reform effort undertaken since banking nationalisation in the year 1970. Our PSBs are now ready to compete and flourish in a fast-evolving financial services landscape.”

Given the marketing prowess of the Narendra Modi government, such a claim isn’t surprising. Nevertheless, the question is, does the framework address the basic issues at the heart of reforming the public sector banks.

In May 2014, the Committee to Review Governance of Boards of Banks in India (better known as the PJ Nayak Committee) had submitted a detailed report on reforming the public sector banks in India.

As the report submitted by the PJ Nayak committee pointed out: “Governance difficulties in public sector banks arise from several externally imposed constraints. These include dual regulation, by the Finance Ministry in addition to RBI; board constitution, wherein it is difficult to categorise any director as independent; significant and widening compensation differences with private sector banks, leading to the erosion of specialist skills; external vigilance enforcement though the CVC and CBI; and limited applicability of the RTI Act. A more level playing field with private sector banks is desirable.”

The committee had also proposed a solution to these problems. As it said: “If the Government stake in these banks were to reduce to less than 50 per cent, together with certain other executive measures taken, all these external constraints would disappear. This would be a beneficial trade-off for the Government because it would continue to be the dominant shareholder and, without its control in banks diminishing, it would create the conditions for its banks to compete more successfully. It is a fundamental irony that presently the Government disadvantages the very banks it has invested in.”

There is nothing in the Indradhanush framework which talks about either privatisation or the government bringing down its stake to lower levels in public sector banks. The Modi government like the previous Manmohan Singh government wants to continue owning 25 public sector banks. Also, by wanting to own 25 public sector banks, the government has gone totally against the “minimum government maximum governance” philosophy that Narendra Modi had espoused in the run-up to the Lok Sabha elections that happened last year.

The Nayak committee had also proposed that the government follow the Axis Bank model, where the government is an investor rather than the promoter. “The CEO is appointed by the bank’s board, and because the bank was licensed in the private sector, it sets its own employee compensation, ensures its own vigilance enforcement (rather than being under the jurisdiction of the Central Vigilance Commission), and is not subject to the Right to Information Act.”

The Nayak committee had also talked about the need to do away with the dual regulation of public sector banks by the ministry of finance as well as the Reserve Bank of India. This, the committee had said makes public sector banks uncompetitive. As the report of the committee had pointed out: “Any directions issued which are applicable to a subset of banks do damage to that subset, however laudable the objectives. Those banks not part of the subset are under no obligation to participate; if they do so the participation is voluntary, while for the subset it is coercive. Such discriminatory orders reduce the competitiveness of the subset. It is ironical that the Government seeks to make uncompetitive the very banks it has invested capital in.”

An excellent example of this is the lending carried out by public sector banks to many infrastructure companies over the last few years, where the private sector banks had stayed away from lending. A major part of the bad loans on the books of public sector banks come from lending to infrastructure companies.
As DN Prakash, President of Corporation Bank Officers’ Organisation and Vice-President All India Bank Officers’ Confederation, said in a press release: “A major part of NPAs of PSBs are in infrastructure, power and telecom sectors. When private sector banks had stayed away, PSBs had lent to these sectors as part of their commitment to economic growth and nation building. Today, they are blamed for the NPAs in these sectors.”

In order to rule out such problems the Nayak committee had recommended: “The Government should cease to issue any regulatory instructions applicable only to public sector banks, as dual regulation is discriminatory. RBI should be the sole regulator for banks, with regulations continuing to be uniformly applicable to all commercial banks.”

But the Indradhanush framework does nothing on this front. The idea of giving away control over public sector banks is a little too difficult for babus and politicians to digest. On this front, the Modi government is not very different from the previous governments.

Further, the public sector need a lot of money in the years to come, which the government as the major owner has to provide. But it cannot do so without ending in a big financial mess itself.

The Nayak committee between January 2014 and March 2018 “public sector banks would need Rs. 5.87 lakh crores of tier-I capital.” The committee further said that: “assuming that the Government puts in 60 per cent (though it will be challenging to raise the remaining 40 per cent from the capital markets), the Government would need to invest over Rs. 3.50 lakh crores.”

The government on the other hand estimates that “the capital requirement of extra capital for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore.” Of this amount it proposes to invest Rs 70,000 crore. Where is this money going to come from is a question that the government hasn’t tried to answer.

Over and above this, the Indradhanush framework does not come up with any fresh thinking on the issue of bad loans that has been plaguing public sector banks. It lists out a series of things that the Reserve Bank of India has been doing for a while now. But as is well know these steps haven’t done much to stem the rot when it comes to burgeoning bad loans.

As Prakash of Corporation Bank puts it: “there is no resolve on part of the Government to recover NPAs from big corporates that constitute the major chunk of NPAs [non-performing assets] in the industry.”

There doesn’t seem to be any systematic solution in light to clean up the bad loans mess at public sector banks. The government had an opportunity to do this with the Indradhanush framework, which it has clearly missed. As Crisil Ratings pointed out in a brief research note, “A ‘surgical’ response to the challenge of NPAs by creating a ‘bad bank,’” could have been a step in the right direction.

The column originally appeared on Swarajya Mag on August 26, 2015

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)