Com. Sitaram Yechury, M.P. and General Secretary of CPI(M) has written the following letter to the Prime Minister opposing the start of “Bad Bank”

“Please refer to my letter to you dated 7 July 2016 about the alarming increase in the Non-Performing Assets (NPA) of state-owned banks and your government’s reluctance to recover these bad loans. As we have not witnessed any action on the points so far and because of newer developments in this area, I am being forced to write to you again.

Recent reports show that bad loan provisioning for most state-owned banks doubled – and even trebled in some cases — in 2015-16. To make matters worse, the core earnings of most of these banks have fallen grossly short of the requirement for bad loan provisioning. There has been a lack of concerted effort to recover these bad loans, and your government has instead waived Rs 59,547 crore of bad loans of big borrowers in 2015-16. All this while, the farmers continue to be hounded for repayment of minor amounts in drought years.

These big borrowers have viable assets which can be easily recovered by banks, if backed up with political will and determination. Instead, we have seen a proposal to divert all the bad loans from state-owned banks by creating a single “bad bank”. It is an attempt to portray a clean-up of bank account books by diverting the bad loans to a separate new entity, which will still be government owned. This “bad bank” will still be furnished by public money as all the other banks will be recapitalised by your government, while big borrowers would be allowed to go scot free at the cost of the honest tax-payer. This amounts to the cronies being rewarded for their profligacy, bad business practices and their lavish personal lifestyles by the hard earned savings of the vast majority of the middle classes and the poor of this country.

A proposal to create a “bad bank” was publicly rejected by the former RBI governor, Raghuram Rajan. He had identified the ‘moral hazard’ problem of this proposal, where the banks would continue to lend to the same big borrowers who would display scant regard for returning these loans.

Before any attempts at whitewashing the bad loans by recapitalising the banks, the principle of “Recovery First, Recapitalise Later” must be followed in letter and spirit of your government. To not do so would confirm our worst fears of your government – which has written off Rs 1,12,089 crore of loans of big borrowers — being beholden to crony capitalism.

As I had mentioned in my previous letter, the need of the hour is for your government to put into practice an urgent action plan to start recovery of pending loans from Top 100 borrowers. You must begin by making public their names with the due amount. A failure to do so would mean that your government is making our working people pay for the criminality of the rich defaulters. This is an inversion of the principle of natural justice.

We hope that you will reject this proposal of creating a “bad bank” and start recovery of bad loans on priority. Anything less would be tantamount to dereliction of your constitutional duty as the prime minister of this country.”