Promoting Crony Capitalism:

Rs. 8.5 Lakh Crore Mega Scam


We are herewith releasing a letter addressed to Prime Minister, Narendra Modi by CPI(M) General Secretary and MP, Sitaram Yechury on July 7, 2016 regarding the misappropriation of money loaned by banks to a few corporate houses.

Full text of the Letter

Shri Narendra Modi
Prime Minister
Government of India
New Delhi

Dear Pradhan Mantri ji,

I am writing to you regarding an extremely important matter which concerns the lifelong savings and, hence, the future livelihood security of the overwhelming majority of our people.  This needs your urgent attention and intervention.

The latest RBI Financial Stability Report has once again highlighted the precarious situation of our banking sector. As of end-March 2016, Gross Non-performing Assets (GNPAs) of all Scheduled Commercial Banks (SCBs)are at Rs 5,60,822 crore, 7.71% of their gross advances of Rs 72,73,927 crore. In addition, the restructured standard advances are at Rs 2,94,729 crore, 4.05% of the gross advances.

This means that more than Eight and half lakh crore rupees (Rs 8,55,551 crore) of the loans given by our banks have not been returned by the borrowers. Going by their response and the action taken by your government so far, it is highly unlikely that these monies will be returned anytime soon. Needless to add, this is every single Indian’s money which has been misappropriated by these borrowers, which are mainly big corporates.

At a public event on 01 July 2016, the Comptroller and Auditor General of India (CAG), Shashi Kant Sharma is reported to have said, “There is a belief that a significant part of NPAs could be amounts fraudulently obtained as advances from the banking system. There is also a belief that a large part of these amounts may have been transferred abroad and may never get recovered”. (Business Standard, 02 July)

During your election campaign, you had famously promised to bring back all the black money from abroad and deposit Rs 15-20 lakh in every Indian’s bank account soon after assuming office of the Prime Minister. Leave alone your promise of bringing that amount back, money from the banking system under your watch, if the country’s top auditor is to be believed, has “been transferred abroad and may never get recovered”.

The asset quality of our Public Sector Banks (PSBs) is even more critical with a stressed advances ratio of 14.5% in March 2016. The provision for doubtful and loss assets of PSBs are now at Rs. 1,85,840 crores resulting in all nationalised banks reporting a net loss of Rs. 20,590 crores.  In fact, the total market value of the PSBs is far lesser than the GNPAs owed to them, an extremely alarming situation.

You are well aware that the top ten corporate houses owe a staggering amount of Rs 7 lakh crores to PSBs and financial institutions. As per a report last year, Adani Group had gross debt of Rs.96,031 crore, Essar Group Rs.1.01 trillion, GMR Group Rs.47,976 crore, GVK Group Rs.33,933 crore, Jaypee Group Rs.75,163 crore, JSW Group Rs.58,171 crore, Lanco Group Rs.47,102 crore, Reliance Group Rs.1.25 trillion, Vedanta Group Rs.1.03 trillion and Videocon Group Rs.45,405 crore.(Credit Suisse Report)

As per the RBI, the ratio of GNPAs of Top 100 borrowers to total NPAs of banks is 19.3%, as of March 2016, up from 0.7% in March 2015.

While the NPAs have increased by nearly 80% in the last one year, it is sad to note that your government’s efforts for greater recovery have not shown any corresponding rise in the resolve to recover these. The total recovery done in FY 2015-16 by all the public sector lenders was Rs 1.28 lakh crore, which included 46% of this amount being written off. The recovery in FY 2014-15 was already Rs 1.27 lakh crore, which gives credence to the view that your government is not serious about recovering public money from these defaulters.

Many of these facts have come to our notice because of the stringent Asset Quality Review (AQR) undertaken by the Reserve Bank of India (RBI) under Raghuram Rajan. Having been constantly attacked by your party MPs and leaders, Mr Rajan is now leaving his post in September while the AQR process ends in March next year. Your silence, while an important constitutional functionary was being viciously attacked, has led many to believe that you are not interested in completing the bad loan clean-up exercise. This leaves no other explanation but to conclude that your government actively patronises and promotes `crony capitalism’.

Recent media reports suggest that your office has mooted a scheme to recapitalise the PSBs by using Rs 3 to 4 lakh crore from RBI’s capital base. This is a dangerous idea as it diminishes RBI’s capacity to withstand internal and external economic shocks.

The RBI has been a fiercely independent institution and by following such a dictat, the central bank would be seen as a government tool. Moreover, by becoming owners of these banks, the RBI will have mixed objectives as it conducts and regulates monetary policy.

None other than the RBI Governor himself has opposed the idea, which was first floated in this year’s annual economic survey. At a speech in Bangalore last month, Mr Rajan said, “The Economic Survey has suggested the RBI should capitalise public sector banks. This seems a non-transparent way of proceeding, getting the banking regulator once again into the business of owning banks, with attendant conflicts of interest”. (RBI website)  I urge you to recollect that in order to avoid such a conflict of interests, on the recommendations of the Malegam Committee, the Government of India bought RBI’s 59.7% stake in State Bank of India (SBI) at Rs 35,531 crore in 2007.

Moreover, while proposing the idea in the annual economic survey, the Chief Economic Advisor (CEA) had categorically warned that, “Most important, any such move would need to be initiated jointly and cooperatively between the government and the RBI. It will also be critical to ensure that any redeployment of capital would preserve the RBI’s independence, integrity, and financial soundness—and be seen to do so.” (Economic Survey 2015-16)

In accordance with the CEA’s warning, the move to recapitalise the banks from RBI’s capital base, having been opposed by the RBI governor himself, needs to be shelved forthwith. The government must find a transparent way to do so, instead of surreptitiously trying to maintain its fiscal deficit by eroding RBI’s capital base.

In any case, no plan to recapitalise the banks must be executed without an action plan for recovery of unpaid loans. Your government has not put the big business houses under any pressure to return the loans. They continue to flash their lavish lifestyles and their personal wealth remains unaffected. While the crony capitalists make merry, your government is harsh on poor farmers, ruined under the onslaught of two consecutive droughts, face confiscation of their utensils and cattle when they can’t pay a loan of a few thousand rupees!

I urge you as Prime Minister, to put into practise an urgent action plan to start recovery of pending loans from the Top 100 borrowers. You must begin by making public their names with the due amount; the list is already available with the RBI, your government and the Supreme Court. No further public money must be given to the PSBs, till all the assets of the defaulters have been monetised. The failure to do so would mean that your government is making the poor Indians pay for the profligacy of these crony capitalists.

To conclude, I once again exhort you to consider the issue in full seriousness, initiate an action plan to monetise the assets of all defaulters beginning with making their names and amounts public. The plan to recapitalise the PSBs by eroding RBI’s capital base must be shelved. And the principle of recovery first, recapitalisation later must be followed in letter and spirit by your government. The failure to do so only confirms that your government remains beholden to the power of ill-gotten money, hence patronises and promotes crony capitalism.


Yours sincerely


(Sitaram Yechury)