Shame on you CII

While it's difficult to hold a brief for the managements of banks like Indian Bank which have wiped out their net worth twice already, thi...

While it’s difficult to hold a brief for the managements of banks like Indian Bank which have wiped out their net worth twice already, this time around, ironically, the bank managements and unions have come up smelling of roses. In their fight against the CII recommendations that three banks — Indian Bank, United Bank of India and UCO Bank be closed because of consistent disastrous performance, the unions charged that CII’s members were to blame, as they were huge defaulters. And when they threatened to go public with the defaulters’ list, CII blinked and asked the government to disregard their carefully argued recommendations that it would be cheaper to close these banks Indian Bank, for instance, has come back for another bailout in under three years after P. Chidambaram first gave it a bailout.

If this abrupt volte face, generally associated with politicians, wasn’t bad enough, CII committed another boo boo. It spoke of how the media highlighted just one of various recommendations made by its panel,and then issued a carefully worded Press release, stating that the members of its task force on banks were not defaulters to nationalised banks. The bank unions have given `details’ of task force members who are in fact defaulters to such banks. But even if we assume these may not be absolutely accurate — CII still hasn’t replied to this latest charge — the point is not the task force members themselves, but of CII members in general. And their dues not just to banks, but also to financial institutions. And there’s no question of the CII’s members as a whole not being defaulters.

The issue, of course, is not of CII looking small. Certainly FICCI and Assocham which have supported the unions and argued against closing the three weak banks, have an equally large number of defaulter members. The issue is of how we can, as a country, afford to have our banks saddled with bad and doubtful debts of a whopping Rs 60,000 crore for the banks alone, and another Rs 10,000 crore for financial institutions (FIs) suchas IDBI, ICICI and IFCI. IFCI, the worst of the FIs, has bad loans which account for a fifth of its total portfolio! None of this is close to how badly off the South East Asian tigers were when their economies had their financial crises, but then as the report points out, at a per capita income of $400 per head India is less equipped to deal with a banking collapse than countries like Korea which have a per capita income of $10,550.

It is obvious that antiquated laws which prevent companies from closing down when they become sick an average decision at the BIFR takes two years and 20 days or the absence of laws which ensure quick settlements of claims, are a major factor for this sorry state. While confiscation of defaulters’ property, as in neighbouring Pakistan may be a bit extreme, what we should do immediately is to make public the secret list of defaulters that the RBI circulates among bank chiefs each year. Apart from the pressure that having their names out in the open will put on habitualdefaulters, it will also make it that much more difficult for politicians to pressure banks to give more loans to such individuals. A large part of the NPA problem has to do as much with industrialists, as it has with obliging politicians.

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