The waiting debt trap.

Every so often Financial Services Secretary, Rajiv Takru starts spewing fire and sulphur against bad loans, called Non Performing Assets, incurred by banks.  The reason for his ire is that banks have referred 549 cases of defaults of loans to the Corporate Debt Restructuring Cell with a total value of Rs 3.38 trillion till 30 June of this year which is 49% higher than Rs 2.27 trillion last year. " Every bank in any particular lending consortium will have to file an FIR ( first information report ) against a borrower who is found to be a wilful defaulter," he said. He is right to be worried. Loans through Kisan Credit Cards are over Rs 2 trillion and total loans to the agricultural sector is more than Rs 5 trillion. Before the 2009 elections the Congress bribed farmers by waiving repayment of all loans, costing banks Rs 750 billion. Farmers are no doubt waiting to be forgiven again before 2014 elections. In a really weird case of reverse bribery infrastructure companies actually paid a " premium " to the government to build roads, airports and power plants. The companies were expected to recover costs from the people through higher toll charges on roads, extremely high airport charges and constantly rising electricity prices. The Congress thought that, like the compulsory reservation of 25% of seats in private schools for poor children, it would gain credit for getting poor children into private schools and collect huge amounts of money upfront to spend on wasteful social schemes to bribe the " vote bank " while blaming companies for the increasing prices. In a case of breathtaking dishonesty the Congress took the money and then failed to provide land for building roads, environmental clearance or captive coal mines to provide power. The companies took loans believing that the government would honor its side of the bargain and are now landed with massive debt. In a report Credit Suisse says that 10 large business groups which are Adani, Essar, GMR, GVK, Jaypee, JSW, Lanco, Reliance Group, Vedanta and Videocon have a combined gross debt of Rs 63.10 trillion. They were also encouraged to borrow abroad to take advantage of historic low interest rates which has jumped in value because of the falling rupee. These companies are now having to sell assets to decrease their debt load. But will it be enough to reduce the NPAs?