Restructure of loan is not permanent cure for ill banks

Since long I have been pointing out that banks cannot remain in good health by concealing its bad assets. Restructuring of bad loans was allowed by RBI in the year 2008 to give so called relief to developers of real estate after collapse of Lehman Brothers in USA. In fact at that time also there was no any linkage of weakness of Indian developers with that of crisis erupted by dint of Lehman Brother. Rather Real estate developers were in the best health they could ever imagine, earning highest profit by selling their flats and commercial places at exorbitant high prices and by starting new projects beyond their financial capacity.

In fact real estate developer had enlarged their area of work beyond their financial capacity by availing disproportionate huge loans from banks. As soon as crisis of liquidity in USA erupted, Indians government and Indian banks apprehended delay in receipt of export proceeds and consequently fear of liquidity crisis started haunting their mind. When banks were tightened by RBI, the developers started feeling pain in their abdomen and it is they who could not pay their dues to banks as per scheduled time, rather expressed more hunger for more loans to complete their incomplete projects .Such demand triggered so called liquidity crisis.

It was consumers who had to pay the price. Prices of all landed properties went on increasing and government of Manmohan Singh remained silent spectator because there was a clear nexus between profit-maker developers and the government. It is not astonishing that prices of all essential commodities have been going up and up despite all hue and cries by consumers and opposition parties.

So far as banks are concerned RBI knows very well that banks are falsely being portrayed as healthy by management of PSU banks in collusion with RBI and Finance Minister. In fact each PSU banks have thousands of accounts as bad but shown as standard. Real Non Performing Assets (NPA) in each PSU banks is in alarming position and it existed in the month of September 2008 also.

Collapse of Lehman Brother or Sub Prime Crisis in USA gave an excuse to RBI and Government of India to hide bad assets in the name of restructuring of loan .Government of India got an opportunity to hide adverse affects of its bad policies formulated at the instance of dirty politicians of the country. Waiver of agricultural or small loans to the tune of Rs.75000/ crores had already damaged the health of the banks.

But hiding of cancerous disease cannot keep the body healthy for long and eventual death of the system in unavoidable and again the looser will be retail customer for none of their fault. Banks have been demanding therefore one more occasion to conceal bad loans in the name of restructuring. A few months ago banks had raised demand of relaxing in prudential norms which RBI accepted to some extent by allowing lesser provision for housing loan and lesser capital requirements.

Bankers know the bitter truth of the system and each CMD somehow or the other aspires to pass his tenure by hiding the malady .None of CMDs and hence none of his subordinate in the banks have the courage to accept the reality and declare all bad assets as bad assets. But how long this vicious circle of concealment will continue and how long banks will be able to cook balance sheets, only God knows. Banks are however clever enough to show bad loans as lesser or negligible percentage of bad loans compared to overall loans of the banks. This is made possible by extending bulk loans to corporate or selling bad loans to AMC. In this way they are simply trying to pass on time and trying their best to appear as if they are genuinely growing, as if there is no inherent weakness.

I therefore praise RBI that they have taken a bold step to deny the demand of banks to allow them one more occasion to restructure the loan. If RBI does not bow down under pressure built by CMDs of banks or under pressure of government of India to maintain concocted but positive image, I hope reality of some CMD will precipitate on the floor and government will be able to distinguish flatterers from performers. People of India will be able to distinguish between really strong banks and factual weak bank.

Not only this, prices of all landed properties will start coming down and ultimately become affordable for common men. Prices of flats will also come down and come within the rich of common men again. There will be not fall in demand but abnormal rise in demand for landed property and constructed flats. As such the current step of RBI may appear to be curse for developers and bankers but ultimately it will prove to be boon for consumers, bankers and developers also.
Danendra jain Ganaraj Choumuhani Agartala 79001
9th Feb 2010