Banks are not in good shape. Gross non-performing assets (NPAs) stood at 4.1 per cent of gross loans and advances at end-March 2014, as against 3.4 per cent at end-March 2013. Stressed assets, summing across NPAs and restructured assets, crept up over the year from 9.2 per cent at the outset of 2013-14 to 10 per cent at its close, and have inched up further this year.
Bank loans have turned sour not just because of the slowing economy and high interest rates, but also because of slow government clearances to projects. The previous government at the Centre took cognizance of this and started an online project management system, under the Cabinet Secretariat, to clear obstacles blocking investments. The website calls it a project management system of the Government of India and states, which is most gratifying because it offers to address obstacles at all levels of government.
The central system accepts projects with a value of Rs 1,000 crore and above for consideration, and has links to states for projects of value between Rs 100 and Rs 1,000 crore. The central list claims to have cleared 180 of 465 projects referred to it, thus unblocking Rs 6.58 lakh crore of investment. The numbers on the linked state websites are much smaller. What is lacking, however, is information on the interval between applications for clearance and the granting of that clearance, so that future project applicants for bank loans can make a sensible estimate of the time such permissions will take. More importantly, it says nothing on whether the obstacle cleared for a particular project also cleared the channel for projects coming after it.
An investment threshold of even Rs 100 crore is too high anyway. There is a need for a public listing of projects of any size that have received bank loans, with information on project clearances sought, and the time taken to receive them. There is now a Central Repository of Information on Large Credits (CRILC), introduced by the Reserve Bank of India (RBI) from April 1, 2014, to which banks must report loan exposures of Rs 5 crore and above. The intent behind this initiative was to help early detection of stressed assets, well before they turn into full-fledged NPAs. CRILC data will be aggregated every quarter, but will not be made public.
The CRILC is about loan servicing, but it can form the nucleus of a project-specific reporting mechanism on processes and approvals. Against a listing of project loans of Rs 5 crore and above, a link can be provided for each project where promoters will list in a prescribed format all central and state clearances needed. For each, the time at which the application is made needs to be entered, and the time at which it is granted.
In principle, there is no reason why this information could not be revealed on a public website by the lending bank. Nothing will be shown about the terms of the loan other than its amount. All that banks reveal will be the name of the project, its state of location and its sectoral classification. This information is so public in nature that it could be obtained even through a Right to Information (RTI) application. The subsequent information on clearances required also falls squarely within the RTI domain.
What difference will this make? Well, in the first place, it will show up differences in approval intervals between applicants in the same state for the same type of approval, and just the plain fact of public revelation will serve to converge the distance between them. There may, of course, be perfectly justifiable differences, simply because all projects are not the same. But clearly having the numbers up for all to see pulls away the veil that enables facilitation payments.
Second, sizeable differences between states in mean intervals can emerge out of the data, which can then be taken up for examination, as part of a national governance initiative.
Third, the data will enable banks to make an objective judgement on whether a new project loan applicant has made a reasonable estimation of the distance to the date of commencement of commercial operations (DCCO), which is part of the commitment entered into with the borrower.
Environmental clearances should actually be required before rather than after financial closure. This is one area where information is required not merely on the speed of clearance, but on the content of the agreement with respect to the commitment by the project on impact and clean-up. Publicising this helps environmental activists monitor performance.
With effect from April 1, 2015, a bank loan will lose its classification as a standard asset (not an NPA), if it has been restructured once. However, the RBI has granted an exception for delays in the DCCO, a clear accommodation to the governance delays to which projects are subjected. And the acceptable delay in the DCCO has actually been enhanced.
All this would be fine as a reasonable regulatory response to bumbling governance; but there is increasing evidence that delays in the DCCO are not exogenous to the project, but may well be the endogenous outcome of a partnership between promoters and government in defrauding banks. The way it allegedly works, the longer the DCCO is postponed, the more the scope for the promoter to pull money out of his loan account to serve as equity on some other venture. After he navigates his Ponzi path through a few such zigzags, the promoter emerges enriched, the politician who has co-operated by withholding approval gets his share, and the banks are left to pick up the pieces.
Transparent disclosure of loan clearances and delays will help cut this partnership. Transparency in process approvals is totally harmless, in the sense of not shaming any particular individual, and is, therefore, something banks can unilaterally provide. Its information content is critical for attacking the unholy nexus that holds banks, and their hapless depositors, to ransom.
The writer is a retired professor of economics
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
