Catch me if you can. Top 100 borrowers owe PSB Rs. 13.71 Lakh Crore By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

August 11, 2016 | Posted by bobbysrinivasan << back to blog

The Central Government of India has just announced that the top 100 borrowers in India owe nearly 14 Lakh Crore Rupees to the Public Sector Banks (PSB). A significant portion of the lendable funds of PSB are locked up in the hands of few high networth borrowers. According to the Minister of State Mr. Santosh Kumar Gangwar, the amount involved is Rs. 13771885 Crores Rupees. This is nearly 20% of all lendable funds available with the bank. Two consequences arise out of this. First the velocity which measures the number of times money changes hands would have been affected badly for these banks. Second, the Gross Non-Performing Assets (GNPA’s) of the public sector banks has increased and will continue to increase in the indefinite future.

According to the data available the GNPA was 2.16 Lakh Crores in 2013-14 and had increased to 4.76 Lakh Crore in 2014-15. No doubt 2015-16 will have also witnessed a big growth in GNPA. The GNPA figure is further broken into two. Namely the defaulters whose business environment had probably worsened and hence unable to pay and the willful defaulter who is playing the dodging game namely ‘catch me if you can’. As of March 2016 the percentage of the later group is 16.09% of GNPA.

For an economy to grow and achieve the desired targets the money in the economy should not become stagnant. The bank profits would be a lot better if the velocity is good. What can the government do? They have identified the problem and are forcing the PSU banks to clean up their act. With the gross capital formation and domestic savings rate falling in the recent moths this irresponsible lending by the PSUs will certainly lead to an economic slowdown. Many small and medium enterprises have since closed shops and if only the money was available with the bank to lend them the story will be different.

In the meanwhile RBI has just announced that it will hold the repo rate steady due to non -declining inflation. This is Dr. Rajan’s last decision before he quits in September. The new interest rate decision is now going to be in the hands of 5 member monetary policy committee. The joint decision will be made by both the fiscal and monetary authorities. This is an unusual scenario. Is it possible for the monetary policy committee to make a fair and people oriented decision. I doubt it.

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