The Supreme Court has partially done the right thing by quashing the Reserve Bank circular giving lenders the option of either resolving their loan issue or declaring themselves insolvent. Where it fell short in dispensing justice is that it should have also taken the government and regulators to task. Many defaulters argued their default was predicated on the frequent changes in government policy or the regulators' delay in taking decisions. The power sector, one of the biggest victims of non-payment of dues by struggling state-owned power distribution firms, is an example.
It can't be denied, however, that non-performing assets have reached humongous proportions: Rs 9.2 lakh crores as of January 2019, or 10.2 per cent of all loans. This is the people's money. Various attempts by the government to tackle NPAs through institutions like debt recovery tribunals ended with cases getting stacked up there too.
Interestingly, in 2009, India had the lowest NPAs among the large economies of the world, the G-20 club, but today it has the among the highest ratios of NPAs. What should be of concern to the government, under whose watch these NPAs galloped since 2014, is that big corporates are the major defaulters. It has earned the government the soubriquet of “suit-boot sarkar”. The case of absconding diamante Nirav Modi and his uncle, jeweller Mehul Choksi, fleeing with Rs 13,000 crores underscores the role of big corporates.
A lot of these defaults could have been nipped in the bud if the RBI's representatives on the bank boards had raised red flags when the boards had discussed these NPAs. They should at least make up for their laxness by starting to curb future NPAs.
