The secret mines of bad loans.

The ongoing investigation into the scam at Syndicate Bank, where the chairman of the bank is alleged to have dished out hundreds of millions of rupees in loans in return for bribes, has once again focused attention on the finances of public sector banks. As they dig into the scam the police are discovering that the crooks were friendly with officers at many other PSU banks. So how high are the bad loans at these banks? We are told that the total Non Performing Assets of PSU banks was Rs 2.5 trillion, or 4% of total outstanding loans, at the end of June but banks hide bad loans by restructuring them in a process known as ' evergreening ', in which they issue new loans which are used to pay back the old loan. This is shown as a new loan in the books and the bad loan disappears. Around 5.9% of bad loans have been so restructured which takes the total bad loans to 10%. Combine the bribes paid to managers with restructuring and you have people borrowing billions of rupees with no intention of paying them back. Then there is Rs 1.44 trillion stuck at Debt Recovery Tribunal. How much of that has been written off by the banks, so that they do not show up in the books, we do not know. Banks lend the money we save from our meager salaries for the future. We save in government banks because we see them as safe because the government will never allow one of its banks to fail. However, these bad loans are written off with taxpayer money, which is our money as well, and printing more notes results in inflation as the value of the rupee drops. So we lose out while the crooks laugh with our money. If we thought that this was it and we can now take a deep breath then we were sadly very wrong. Seems that bad loans at power projects are over Rs 3 trillion. According to the terms of the loans repayment will only start from the Commercial Operation Date, or COD, which is the day when the plant starts to produce power. Trouble is that although the power plants have been built they cannot obtain a steady supply of coal and hence cannot start producing power. Plants capable of producing 28,000 megawatts are lying idle because of lack of coal. Companies are refraining from starting production because repayment of loans will immediately kick in while banks are afraid of insisting on a COD in case the companies default which will turn the loans into NPAs. " Everyone is aware of this practice. The banks are not insisting on COD as it will increase their NPAs. Then the real banking crisis will unfold. The numbers are artificially suppressed till there is a revival in the sector," said an anonymous power sector analyst. Now that the Supreme Court has cancelled all coal mining licenses dating back to 1993 will we see a banking disaster. We can only pray.