Why cares about issues, let's just talk (5 August 2001)
Our politicians have spent hours spouting inanities, but no one’s really discussed issues like NPAs that led to a bailout of Rs 1,000 crore for IFCI—many more bailouts are on the cards
Finance Minister Yashwant Sinha managed to deflect the opposition fire over UTI with amazing dexterity. He simply lobbed the ball to Year 1994 and the opposition collapsed as though it was an atom bomb. They cooled off on the involvement of the PMO and agreed to add the UTI problem to the terms of reference of the existing Joint Parliamentary Committee’s .
So engrossed were they with exhibiting their lung power that they allowed several other bailouts to get by without debate — the Rs 1,000 crores bailout of IFCI Ltd last week; the pre-session bailout of Madhavpura Mercantile Cooperative Bank (despite opposition from the RBI) and the third bailout of Indian Bank (Rs 1,000 crore). That is not the end — UTI has already asked for Rs 1,400 crore in addition to the lines of credit it has lined up. IDBI and ICICI, which together have made whopping provisions of Rs 5,515 crores for the year ended March 2001 are probably getting ready to join the queue.
The entire financial sector is worried about the fate of financial institutions (FIs) and the continuous evergreening of bad loans except out politicians. However, no politician is willing to invest time and effort in understanding the finer nuances of issues before they are raised in parliament — all they want is television style ‘sound bites’. The unseemly shrieking sessions that pass off as debate are then carried forward to the five-minute television talk-time later in the evening.
Let us look IFCI, which is going to be the next big ‘controversy’. Of the Rs 1,000 crore bailout for IFCI, Rs 600 crore will be contributed by SBI, IDBI, LIC and GIC. The remaining will come from taxpayers . This only the first bailout, unless there is a drastic revamp of the institution, several more will follow over the years.
Of the institutions roped in to bail out IFCI —IDBI and SBI are listed companies — yet, shareholder and directors of neither company have objected. In the meanwhile, the FIs are already providing the finance minister with ammunition for his pass-the-buck number in parliament. IFCI says that its problems are due to subscription to bond issues guaranteed by state governments. But even while it struggles to organise its own bailout, two pink papers announced that it had promised to ‘process’ a Rs 30 crore loan for Subhash Chandra’s ASC Enterprises — a high risk global satellite venture.
IDBI, too is seeking ‘infrastructure undertaking’ status to prevent itself from turning sick. According to a report in this paper, a Parliamentary Committee has announced that ‘IDBI would turn sick in the days to come’ since it was unable to raise funds at competitive rates. Yet, there is no serious attempt to tackle the monumental problem of bad loans. The Finance Minister has asked banks to ‘send large willful defaulters to jail’, but who will do that when the banks are busy bailing each other out.
While FIs threaten to recall loans, they hardly mean it. Moreover the same favourites switch places and continue to influence decisions. Maybe this has something to do with the fact that IDBI’s board is packed with industry representatives, bankers and academics who are unknown to take a tough stance on any issue.
But the most amazing bailouts by far are in the steel sector, which accounts for the single largest and most understated chunk of NPAs of FIs. The institutions have ‘recalled’ loans to Usha Ispat and Malavika Steel of the Vinay Rai group but group chairman Kulwant Rai was on IDBI’s board until recently. It has now asked a ‘technocrat’ to be administrator of Malavika Steel. It so happens that S.K.Gupta, who is on IDBI’s board as a ‘shareholders representative’ is the Executive Vice-Chairman and Director of Jindal Vijayanagar Steel Ltd — a Sajjan Jindal Company that has been a huge beneficiary of frequent restructuring of loans. For some mysterious reasons, the Sajjan Jindal companies continue to enjoy the benevolence of the FIs. They recently, agreed to buy a 38 per cent stake in Jindal Tractabel for Rs 235 crores, after Jindal failed to replace Tractabel as 50 per cent partner for over a year.
Meanwhile, the steel industry continues to be in the doldrums. The results for the quarter ended June 2001 are a shocker. Just six steel companies have together notched up losses of Rs 1,000 crores during the quarter — Lloyds Steel (Rs 120 crore loss), SAIL (Rs 375 crores), Essar Steel (Rs 213 crores), Jindal Vijaynagar (Rs 133 crores), Jindal Iron & Steel (Rs 9.3 crores) and Ispat Industries (Rs 300 crores figures for Ispat are approximations). If the trend continues through the year, the losses would easily top Rs 4,000 crores, which is approximately the cost of setting up a brand new, 2 million tonne steel plant. Are the FIs bothered? Not a bit. ICICI has recently agreed to fund a new project by Bhushan Steel, which will add to the large capacity already available in this sector. But why should government worry? It has found its defence formula. Anytime that the opposition create a rumpus, all it has to do is dig into history books and toss the problem back to circa 1994, or even 1949.