<div><em> <strong>Sandeep Bamzai </strong>says banks have been bled to death by promoters who couldn't care less, they have used their heft and networking skills to get sweetheart deals</em><br><br><br>The Government may have decided to man up and extend a bail-out package to embattled state owned banks. But the extent of the hole is such that no one has a genuine idea of how deep it is. While the Govt is expected to infuse Rs 70,000 crore into these ailing public sector banks by 2018-19, what is required is Rs 180,000 crore. Agreed that it is a beginning and that as much as Rs 20,000 crore of this Rs 70,000 crore will be used to recapitalise the banks in 2015-16, the first tranche itself is weak given the state of disrepair the banks find themselves in.</div><div> </div><div>As much as Rs 10,000 crore is dedicated for the weaker banks, banks which in the eventuality of a stress test will fail the catechism. In the last Union budget, Govt had earmarked Rs 7940 crore for this long overdue exercise, now an additional Rs 11,500 crore will be given.</div><div> </div><div>In a new Moody's Investor's Service survey dated July 27, the findings suggest that Indian banks will remain challenged by poor asset quality. Regarding Indian banks, there was a 60:40 split between respondents who expected some improvements in asset quality trends in FY2016 compared to the previous financial year, versus those who saw a stable trend. Moody's reckons that Indian banks' problem loan ratios are unlikely to fall in FY2016. However, the new NPL (non performing loan) formation rate will probably decelerate.</div><div> </div><div><table align="right" border="1" cellpadding="1" cellspacing="1" style="width: 200px"><tbody><tr><td><img alt="" src="http://bw-image.s3.amazonaws.com/Sandeep-Bamzai1.jpg" style="width: 200px; height: 287px; margin: 1px; float: right;"></td></tr><tr><td><strong>Sandeep Bamzai</strong></td></tr></tbody></table>In line with this view, the majority of respondents expected no significant increases in the capital levels of Indian state-owned banks over the next two years, and little progress to improve creditor rights of banks over the next three years. We consider that Indian state-owned banks have little capacity to improve their generally weak capital buffers through retained earnings, while external capital infections – including from the government – will likely remain scarce.</div><div> </div><div>That sounds like a definite vote of no confidence from the rating agency. Normally, we take the 'gora' view in our stride and our extremely squeamish about paying heed to their advice. Unfortunately, the excesses committed within the state owned banking system over the lost decade of UPA gives one the heebie jeebies. Loans were advanced courtesy the rampant culture of cronyism as wealth was redistributed by the UPA to its cronies. A back door license permit raj was thus installed where everyone who was 'in' with them was extended favours, be it spectrum allocation on a first come first served basis or discretionary coal block allotments or dipping into the Commonwealth Games Games contracts goody bag. But the worst part and most hurtful to the economic main frame was the emasculation of the public sector banking system. It was done with great disdain as darbari Oligarchs were created without so much as a by your leave.</div><div> </div><div>Loans were disbursed with greased lightning, guns were held to the temples of the bank chairman and sweetheart deals distributed with alacrity. Take the Kingfisher and Deccan Chronicle cases and you will understand how and why. Throw in the arrest of the Syndicate Bank chairman S K Jain and the circle is complete in terms of comprehending the gargantuan fraud perpetrated on the nation. Jain took a bribe of Rs 50 lakh for enhancing the credit limit of some companies in violation of banking rules. In a probe headed directly by ex CBI chief Ranjit Sinha who personally monitored the phone intercepts, Jain's network of his brother and a chartered accountant who functioned as go between were snared. Rs 21 lakh cash, gold and jewellery to the tune of Rs 1.68 crore and fixed deposits worth Rs 68 crore were found at CJain's residence during raids. Bhushan Steel and Prakash Industries were both guilty of offering bribes to Jain. The malfeasance had been exposed but it was only symptomatic of the malaise affecting the state owned banks. Calls are frequently made by fin min officials to provide X.Y,Z a loan.</div><div> </div><div>Earlier this year in February, T Venkatram Reddy and his brother Vinayak Ravi Reddy were arrested by CBI for their alleged involvement in a Rs 358 crore fraud pertaining to Canara bank. The Reddy brothers - promoters of the Deccan Chronicle Holdings all told availed of Rs 1230 crore loans over time from Canara Bank by entering into a criminal conspiracy to cheat the bank. But this was just a tip of the almost Rs 4217 crore that the company owes multiple lenders. Venkat Ram Reddy reportedly wanted to clone Vijay Mallya's lifestyle and in many ways aped his look and style including buying a IPL franchise for $107 million in 2008. His lavish lifestyle straight out of Lifestyles of the Rich and Famous followed Mallya's in letter and spirit including luxury cars like Bentley, Lamborghini, Porches and a Bugatti - all in multiples.Inspired by Mallya he even became an MP.</div><div> </div><div>The man who T Venkat Ram Reddy set out to mirror - Dr Vijay Mallya - has joined him in this extraordinary tale of indebtedness. His tale a spitting image of Reddy's - loans and equity at premium - from public sector banks means that his airline Kingfisher has been shut down and brought the once flamboyant King of Good Times to ruin. Of the Rs 7000 crore lent to Kingfisher, banks can now hope to recover peanuts. A 17 bank consortium led by SBI can never hope to recover this money - SBI has recovered Rs 155 crore out of Rs 1623 due. Of the shares and trademarks pledged to banks at premium valued at Rs 4000 crore, they aren't worth the paper they are printed on - Rs 5.5 crore. These are public deposits that people like Reddy and Mallya have used to run their own failing operations. </div><div> </div><div>Banks have been bled to death by promoters who couldn't care less, they have used their heft and networking skills to get sweetheart deals The bribe for loan scam which saw S K jain being arrested was an astronomical Rs 8000 crore write off involving Era Group, Tayal Group, Sterling Biotech, Arshiya International, Shiv Vani Group, Bhushan Steel and Prakash Industries among others. Uco Bank, Bank of Maharashtra, Syndicate Bank and Canara Bank were involved with Pawan Bansal, MD Altius Finserv acting as the centrifuge. and connecting the calls between the corporates and the bank chairmen. </div><div> </div><div>The absence of a Bankruptcy Act in India is the single biggest reason why corporates and their bosses along with smooth middle men get away. But more about another time. Indian state run Banks need large dollops of cash to cure their books, piffling amounts will not improve their problems. A capital deficit govt needs to overhaul the entire system and usher in transparency and governance to remove the widespread opacity that exists in loan disbursal. Jain or Reddy's arrest will hardly act as a deterrent, human ingnuity knows no bounds.</div><div> </div>