Prime Minister Mr. Manmohan Singh on 19th December cautioned that US slowdown may hit Indian economy too. Hitherto political leaders were crying loudly that Indian growth will not be effected by Sub prime crisis in USA. Even media men and stock experts who express their views on the future prospects of Indian stocks were telling the investors and general mass that Indian share market will remain unaffected by recession or subprime crisis in USA.
All of a sudden there is U-turn in the assessment made by the government on the repercussion of US crisis on Indian economy particularly in view of our large scale dependence and inter-linked to global economy. For last six months and more we have been listening the news of US economic crisis and various measure taken by US government to prevent further damage to their economics and Federal rate is one of various measures in that direction. The immediate effect of speech of PM Mr. Manmohan Singh will be fall in share market of 20th instant and ahead.
Due to unbridled finance made by US banks in real sector and due to dilution of normal and unavoidable norms for financing, assets of their banks are endangered. They are unable to recover the money which they lent to big houses or small individuals under retail lending. Their disbursement of loan was much faster and recovery was much slower compared to disbursement which resulted in recession. Now they have announced rate cut to stop deterioration of the crisis but instead of any improvement there are other side effects of the rate cuts .Even good depositors have started withdrawing money from USA and investing in foreign stock markets or projects.
As far as I understand Indian government has not taken any lesson from the critical position of US economy and neither have they taken any step to overcome and combat the similar situation in India and rather nip in the bud? As a matter of fact we are already badly affected by sub-prime crisis long before USA. Indian banks have also broken all past records of lending in retail sector and the fact is that more than 50 percent of growth in credits comes from retail sector. Banks are unable to recover the money they lent to bad borrowers or will defaulters inspite of all legal measures. Because willful defaulters or bad borrowers have got no fear of judiciary or police action or bank’s officials . All officers in India can be managed with a packet of money and all penal actions can be converted into grant of award. Bad borrowers become the backbone of Indian economy when political leaders so desire.
In India, our cunning and wise officials concerned with the subject of economics or Managing directors of banks are definitely realizing the jolt of subprime crisis but they are expert in projecting the picture of Indian economy and health of banks in such a way which pleases their mentor ministers . Indian officials have to project rosy picture of all projects even if there are dirty, full of thorns and incur losses and losses only.
Assets worth Lacs of crores in banks are Non-performing. Still banks claim that net NPA of banks has come down to 2 or 3 (actually it is more than 10%) percent of their total advances. RBI and Government of India understand well that the balance sheet and P % L account of all banks is mostly concocted in collusion with the team of numerous Chartered Accounts.
Because, Non Performing Assets (NPA) in all banks is actually far larger than what they show to public and show to the Government of India.
All measures taken by the government of India for recovery of bad loans through establishment of Debt Recovery Tribunal (DRT), Securitization act empowering banks to seize the property of bad borrowers, Lok Adalats for expeditious disposal of bank's cases related to bad advances to recover NPA from willful defaulters have failed completely.
On the other hand bank officials are not getting time even to issue notices to their defaulters, Court officials are unable to decide the fate of bank's cases lodged in the court for recovery of their dues from bad borrowers .And police force are unable to execute even decrees issued by the courts. Inspite of complete failure of recovery mechanism prevailing in the system, our ministers always put pressures on Chairmen of Banks for more and more lending, for lending to farmers, students, exporters, industrialists and that too at lower rate of interest. They are advised not to be harsh on their bad borrowers, not to appoint recovery agents. They are further advised to make compromise with the defaulters or even if write off the dues. Banks are therefore trying to understand the language of Ministers and their immediate bosses and conceal the maladies of the bank and reveal only rosy part of the ground reality. Obviously jolt of subprime crisis in India is absorbed by expertise of balk officials and governing ministers.
Immediate task before all bankers is how to manipulate facts and figures and project attractive picture in balance sheets by motivating team of Chartered Accountants to avoid incorporating adverse points in their audit reports. All such malpractices are flourishing not only in banks but in all government offices/departments and executives who are sitting at the helm of affairs have got Ph.D. in managing the affairs in such a way that effects of subprime crisis in India cannot be felt by Ministers.
Mr. Manmohan Singh says that due to US slowdown capital inflow will be affected. The fact is that capital inflow is too high to control the same. This is the statement of the same Mr. Manmohan Singh which he spoke just a fortnight ago. He had expressed his concern for exporters who were suffering huge losses and constrained to stop export of their product only because rupee becoming stronger and stronger compared to dollar. In fact due to subprime crisis and subsequent Federal Rate cut in US there has been unprecedented growth in capital inflows into the country and our foreign reserve is approaching 300 billion US dollars. Imports are growing but exports are showing dismal growth because of strong rupee and weak dollar.RBI and government has failed to minimize the difficulties exporters are facing.
There is no consistency in our policies and plans. Our leaders want to please all by empty promises. Ultimately they fail in all their projects but get exposed only when it is too late.
Our country has witnessed so many small banks going bankrupt or forced to merge with other big banks. It is also true that many more big banks will also have to shut their doors if they resort to unbridled lending without ensuring recovery of the same. Manipulation of figure may not save them for longer period. Banks are to be exposed and subprime crisis harder and harsher than that of USA will precipitate sooner or later.
Mr. Manmohan Singh is the head of the Government and he is supposed to take safety measures immediately. Mere cautioning the people of the country will not serve any purpose. If there is a will there is a way. He talks of 10 percent GDP growth in Indian economy but fails to understand or do not like to understand who are the real beneficiaries of such growth in GDP. The bitter truth is that 90 percent of GDP growth is meant for hardly 10 percent of population.
Danendra Jain, main road, Ranchi 834001
20th December 2007
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