Banking NPA or non performing assets and PNB Scam.

Unrecoverable loans of public sector banks.

Non Performing Asset or NPA is a euphemism for ‘bad or unrecoverable loans’ in India. It is similar to sub-prime loan crises in USA in 2008 but there is a huge difference. NPA in India consist of Commercial loans given to large businessmen. NPA has little or no component of personal or housing loans. NPA also has another feature that it is mostly secured with collateral but due careful crafting the collateral is grossly inadequate. A large number of these borrowers have also been or soon would be declared willful defaulters and they will be placed on blacklist for future loans.

Recently it surfaced that few swindlers were able to take Letter of Credits without collaterals as well. This is called Punjab National Bank scam performed by a person named Nirav Modi and his uncle Mehul Choksi. These people anticipated problems and simply vanished.  Another scamester who allegedly misappropriated loan money is Vikram Kothari. He is in custody. There are about 9300 odd such wishful defaulters.

Unfortunate and sad part of NPA saga is that it happens every two decades. Banks were nationalized in late 60’s due to similar problems. Last such problem was in 90’s. Several banks whose capital was wiped out were merged with larger banks besides infusion of more funds. It is all over Déjà Vu in 2014-2018.

So what caused this mammoth blunder?

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