Tuesday 8 August 2017

Why banks are not the victims in NPA generation?

Stakes regarding NPA (Non-Performing assets) are at its record high and perspicuously if there is anything pivotal in the economy after G.S.T, that thing is NPA. In July this year, the government of India passed the Banking Regulation (amendment) bill which cued the RBI (Reserve Bank of India) to direct all the banks to initiate stiff loan recovery processes against big loan defaulters in order to recover ‘bad loans’ from the NPAs. Further this month only Finance Minister Mr. Arun Jaitely announced that the requisite proceeding against 12 big load defaulters has already kicked up.

As the processed commenced, the banks projected themselves as mere victims and are demanding their money relentlessly. But are banks really the actual victims? This needs a lot more clarification because it is not a hidden facts and banks do encourage risky industrial ventures to pump up their lending.

Bhushan Steel was once a very well known name in the steel industry of the nation. When India’s automobile industry was incipient, in the year 1987 Brij Bhushan Singhal and his two sons - Neeraj and Sanjay – acquired a loss incurring steel factory at Sahibabad. In the 1980s the whole steel business was controlled mainly by the state owned company and Bhushan Steel saw a big opportunity there. Having imported the latest technology from Japan, they started the production and soon the profits of the company shot up. Though they had become a famous name in the steel circles, but still their control was much confined and hence following the stellar performance, the company decided to build an integrated steel plant in Odisha.  Big automobile companies like Maruti Suzuki and Mahindra and Mahindra wanted to set a firm foot in Indian industries and hence those were the golden days of steel industry when the steel was sold at around $1300/tone. With big corporate houses in their order books, Bhushan steel was a perfect contender to get huge bank loans and its new to-be plant at Odisha made the company a most promising company in the nation. The prosperous days were still not over. For the 2008 Olympics, Beijing’s need for steel soared to an all time high and steel was the insurmountable king of the industry. Bhushan Steel Ltd. made net profits of Rs 3.13 Billion and exported goods worth Rs. 12.57 Billion. By 2007 the company had already established itself as India’s biggest auto-grade steel maker.

But things took a complete 360-degree reversal after the 2008 Olympics. The whopping demand from China tapered and prices kissed the nadir as fast as they had hugged the summit. The construction of the Odisha plant had only started in 2005 and was to take eight years and hence the company had no option but wait. By 2010, the industry was bearing a debt of more than Rs. 11,400 crore, still it banked heavily on the prospects of its Odisha plant and continued its borrowing spree. Then came 2012, the worst year for the industry. Steel prices touched an all time low with just $300/ton and Bhushan Steel was now amid a huge disaster. At this point, banks could have easily ceased any further lending and would have played safe by taking their money out of the gamble but everyone played facetiously and pinned their hope on the upcoming Odisha plant. In November 2013, the newly prepared plant failed miserably in testing stages only. The plant’s furnace blasted off which left 32 people injured; three of them succumbed to the injuries. This incident marked the final fatal blow to the Bhushan Steel. In 2014, the company was paying an interest of Rs 1600 crore and contrasting was making an abysmal profit of Rs. 62 crore.
After such a disaster, any company would have started extracting its money out of the debt-ridden company but banks further issued fresh loans of up to Rs. 18000 crore. Notwithstanding knowing that the stocks of the company could never pay such humongous loans, the banks still preferred to secure the loan through the stocks which were then at an all time low. 

Today banks continue to project themselves as the victimized ones but veritably they have tried to play with risky projects and have shunned any business sense related to lending. It had become clear that the company was borrowing from one bank to pay the interest rate of the other and this was a very well known fact in the banking circles. Still, banks continue to fund the such a disastrous venture and these hapless victims continued to flounder common business sense up to last year in March 2016, the company was under a debt of Rs. 42062 crore (which is the total amount of money that the government aims to spend on school education this year).

All this is a lucid portrayal over a how everyone makes profits from the rise and fall of companies- only the players change not the profits. Initially, the company rode huge waves of success and now the banks are having their time when they will take back such a huge amount along with interest worth hundreds of crore. Nobody is a victim in this process; it’s just about time and luck. This must always be kept in mind as to how the bank deliberately continued to hike up their lending in spite of being aware of the fact that the company would never be able to pay such a huge loan.

Everything is actually a trap. Some day or the other everyone has to pass through this, but it’s all about turn is currently going on.

JAI HIND, JAI BHARAT

JAI MA BHARTI

No comments:

Post a Comment