No jargon -- RBI should inform people in simple terms about the severity of the crisis that banks are faced with --pic LiveMint
Playing around with words, one has to marvel at the creative ability of economists, bankers and corporate managers who come up with phrases or terminology that hides more than what it reveals.
Well, as if the commonly used term -- Non-Performing Assets (NPAs) -- is not enough, the global banking group Credit Suisse has now come up with the use of a new term -- Impaired assets. And while you are struck at what ‘impaired asset’ means, India Ratings says in a study that 25 per cent of the Rs 10.52-lakh crore of corporate debt over the next three years is likely to turn ‘delinquent’, resulting in an additional Rs 2.54-lakh crore of ‘delinquent debt’. If you are wondering what ‘delinquent’ means in this context, let me explain. A loan becomes ‘delinquent’ when the payment is not made in time.
It took me some time to figure out what impaired assets means. The term may already be in use by accountants but for an average reader it certainly is new. Despite a decline in gross NPAs, the total impaired assets of the banking sector, as of Dec 2019, comes to Rs 16.88-lakh crore screamed a newspaper headline. Reading carefully, it emerged that impaired assets actually means the total write-offs of Rs 7.77-lakh crore since 2014 plus the outstanding NPAs of Rs 9.10 lakh crore. Add both the figures, the total impaired assets actually turns out to be the cumulative loss the banks are staring at.
The question that needs to be asked is why bankers simply can’t say that the banks have incurred a loss of Rs 16.88-lakh crores between FY 2014 and Dec 2019. Even if technically speaking, “written-off’ allows the banks the right to continue with the recovery process, the total loss figure can be revised as and when the bank books are finally closed. In any case, recovery measures have not yielded more than 15 to 20 per cent of what is once written-off. So why complicate it for the general public? Let them know the severity of the crisis that the banks are faced with. After all, it is public money that goes into recapitalising the banks and people have the right to know. But hold on, did you hear any economist express concern at the fiscal drag the burgeoning impaired assets of banks will result in?
It has always been a clever play with vocabulary. When an ordinary borrower fails to repay the bank he/she is called a defaulter. A cibil score even provides a summary of your credit history. But when a company defaults on a loan, it is not called as a defaulter. It is labelled under NPA, which means it has faulted on a loan or advance for which the principal or interest payment has remained overdue for a period of 90 days. Within this category, there is a classification of ‘wilful defaulters’ who actually have the ability to pay back but they don’t. The government acknowledges that number of such ‘wilful defaulters’ has risen by 60 per cent in the five year period, 2014 to 2019. If there are ’wilful defaulters’ among the corporate why the NPAs can’t be simply clubbed as corporate defaults? Let the people know in a simple language they can understand the total amount of loans that the companies have defaulted in.
Further, to hide these ‘wilful defaulters’ the RBI has been withholding these names from being made public. A heightened fear is created as if revealing these names will jeopardise the economy. But when it comes to defaulting farmers, their names and pictures are displayed in tehsil headquarters. While the defaulting farmers with petty outstanding amounts often end up in jail, the banks take a ‘haircut’ to bailout the defaulting corporate with massive outstanding toxic debts. A ‘haircut’ means the loss a bank will suffer when a defaulting company fails to pay up. It is the bank that bears massive losses, while the corporate borrower is free of the financial debt. Wonder, why can’t ordinary citizens who are unable to pay back their home/car loans too get the benefit of a haircut?
As per news reports, banks are expecting zero recovery from the ongoing 354 liquidation cases under the Insolvency and Bankruptcy Code (IBC) resolutions lined up for 2020. This means banks will take a ‘haircut’ of Rs 3.55-lakh crore.
It doesn’t end here. When the poor are given financial aid it is dubbed as subsidy. And subsidy is a highly demonised word. The moment the government announces a subsidy for farmers or for the poor it is invariably followed by an uproar. This is a wasteful expenditure; this subsidy amount will widen the fiscal deficit; and where will the money come from are some of the usual questions. But when the government provides financial aid or grant to the industry, a different term is used -- Incentive for growth. While subsidies for the poor are considered bad for the economy, incentives are projected as an investment for economic growth.
Often on panel discussions whenever I would say that incentives for growth are also subsidies, my co-panelists would question my understanding of economics, saying that incentives are absolutely necessary for economic development whereas subsidies are a fiscal drain. This was very rightly answered by Prime Minister Narendra Modi while addressing the 2016 ET Global Business Summit when he asked whether this difference in language is a reflection of the difference in our attitude. When a benefit is given to a farmer or poor, experts and government officers normally call it a subsidy. But when a benefit is given to the industry it becomes an incentive. Saying that government support should not be viewed from any ideological position, the Prime Minister wondered how experts would react if fertiliser subsidy is renamed as ‘incentive for agricultural production’.
Imagine, if the incentives the industry gets were to be renamed as subsidies? Imagine if the food subsidy was to be renamed as ‘incentive for food security’? That’s the kind of mindset change the country desperately needs. #
Source: Of Incentives to firms & Subsidies to poor. The Tribune. Mar 16, 2020.
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