State-owned banks must be freed of influence

State-owned banks have assessed that influential defaulters are to blame for the epidemic of loan defaulting and the continuously increasing bad loans. But the matter is not as simple as this frank admission makes it out to be. We have a few questions which we have been asking for some time now. How and why were these loans given in the first place? And why, despite repeated assurances of action against the defaulters, has no substantive action been taken against them?

That undue influence and lack of due diligence in disbursement of loans is a major cause is known. In the recent past, even a list of top 100 defaulters was prepared, and according to these banks, 52 percent of the delinquent loans are stuck with these 100. So we know the prime defaulters; we know that there was a severe lack of oversight and in following procedure during disbursement, and that the loans were not always invested in the sector mentioned in the credit proposals. The lenders also point to the long-drawn-out process in the Artha Rin Adalat (money loan court) as an impediment to recovering these non-performing loans. But, reports about these irregularities over the last year have been met with denials from the administrative quarter.

Ultimately, the lenders are correct. Fixing the problem would require that the pressure from political and influential quarters must stop. The commitment towards recovering these bad loans is laudable, and speeding up the judicial process is a must. But what we also need, similar to the identification of top defaulters, is investigation into who approved—and rescheduled, in many cases—these bad loans, and under whose influence. And our policymakers need to address the governance and management deficiencies, which have led to this state of affairs in the first place, by empowering the banks to be free from political influence, and ensuring regular oversight on procedures and the loans approved.