June 4, 2018

Speaking at NewsX NPA conclave, in New Delhi

Q: Minister, thanks very much for taking out your time and it’s good to see you again and as you have been, we have been slogging it out, over the last 100 days, I promise you when we began the 100-day campaign, I was regretting having committed a 100 days, it’s more than 60 hours of air time which then, of course, we had to fulfill. But now that it’s over, it’s been a great curve and it’s been a learning curve and there is a lot of activity……..

A: You really can’t solve it. If I can take an analogy from the Railway Department, the punctuality numbers in railways were all manually fed until recently, and therefore, we never knew the real gravity of the problem. When we started ensuring that it’s fed through an automated mechanism that the train leaves the station and the time is logged in through auto checks, we were able to actually see what the punctuality situation really is and are now putting in place steps to address that.

Similarly, the NPAs was a story which over the last maybe 30-35 years was never recognized for its true problem and in the last 6 or 7 years of the UPA government, Congress government between 2008 and 2014, it’s just grow by leaps and bounds… and change the mindset of the nation. Over the years, the mindset of the entire ecosystem and I mean all of us are a part of that ecosystem.

Many of you will recall that there was a time people used to say if you go and take a loan of 20 lakh, 50 lakh, 1 crore or 10 crore, it’s your responsibility to repay that loan but if somebody takes a loan of 5000 and 10000 crores, and in many cases even more, particularly, in that 2008-2014 period, then the responsibility of recovery becomes a bank’s responsibility and you had promoters who are completely going scot free with no fear of the law that they ever have to repay the loan.

It’s for the first time that today the country has started talking about NPAs. I would think this must be the only time that news media houses, newspapers, print media, electronic media are all talking about the problem that we have had for so many years. And thanks to all this collective effort, if we are able to change the mindset of the nation towards a more on honest system of lending, towards a responsibility to repay your loans and should there be a business failure, a genuine business failure, it could happen, you could have a situation where you genuinely try, after all business is all about taking risks. I think then the genuine business failures will be recognized early on and whether it needs change of management, whether it needs a resolution, if the promoter is found not to be a willful defaulter or somebody who has committed fraud in the system, but has the capabilities to run it again, then a resolution through the banking Committee of Creditors and if both of them fail, then quick liquidation so that the money as much money as can be recovered, can come back into the banking system.

Q: So do you feel that because of the larger NPAs and the larger companies who have been in that position, some of the smaller or the medium sized companies have to suffer on that account. Or do you feel because of that the action being taken and all the surround sound around that has affected that?

A: This government is extremely concerned that small, tiny and the medium scale industries, those who have a smaller exposure and possibly have had challenges to their working in the past are given adequate opportunity to revive, to ensure that they get honest chance to be able to continue their business. We all recognise that particularly the small entrepreneurs need support, need held holding and this government will always be ready to support the MSME sector as much as possible and then within that sector also, if somebody is just completely unable to run the business, then I think it will have to go through the regular process.

Q: I’ll just pick up on that, how do you ensure, Sir that your credit offtake which is very important for the economy, it’s so important for growth, and as you mentioned, businesses have to take risks, startups have to take risk. How do you maintain the balance between ensuring that there is market money flowing, but NPAs are being looked after?

A: Well, I think the best way we can do it is what is often spoken about, by the people of India also that it’s not the business of government to be in business and I think, we have, for the last 4 years, given a clear message that political interference in the working of banks will not be tolerated. We have ensured that banks have truly got autonomy in their decision making process and it is a result of that that today we have probably less credit growth in the short term, but we have honest credit growth. People who are deserving and who will pay back the money which is owed to the banks, are getting loans.

I think amongst the loans that in the recent past that would have been disbursed; you will almost find no NPAs. You will find that bankers have also become more conscious about the borrowers, what kind of borrower profile should be taken, what kind of lenders controls on the system or utilization of funds are required. And we are regularly getting reports of companies which in the past have either misutilized the loans that the banks gave them, have transferred them to other companies within the same group.

I recall a company many years ago, which was taking a loan almost every two or three months and we were wondering that where the hell do they get the capital from? And when some investigation was done, I was not a Minister at that time, I am talking of a 10-year-old situation, we found that the holding company would propose a project with a small equity base, take money, put it into a subsidiary that would become the equity in the subsidiary for a fresh loan and taking it down the line with two or three or four levels of subs, you actually had a situation that with almost no equity, the companies were borrowing large amounts of money.

Now, this is the responsibility of bankers to see whether genuine capital is available, equity is truly coming in. Is there round-tripping of money? And to my mind today, we are seeing much more honest banking. We are finding that a lot of the skeletons of the past are coming out. We are finding that certain bad practices which were continuing from earlier years are now getting detected.

Obviously, you will all appreciate, and fortunately, the people of India smart. So, they appreciate that we came into government only in May, 2014 and it’s not as if with a magic wand in June of 2014, we can take out all the problems and we can take out all the NPAs and take out all the frauds. It’s a whole process. We are looking at old accounts. We are looking at the way lending was done. We are looking at systems trying to introduce more and more technology, data mining systems are being brought in and we can clearly see that all of this is having a twin effect; it’s cleaning up the bank’s balance sheets. It’s ensuring that an honest picture is there for the people and the world to see. It’s ensuring that future lending and banking becomes more honest. You can see that after all if 6 lakh crores were disbursed through MUDRA loans. Finally, instead of only big people, the small man is getting the money that he truly deserves to stand on his own feet.

Q: And I promise you, we have some ideas on NPA charter which we are going to give to you in just a second. But let me just pick up from what you were talking about. When it comes to the settlement of these NPAs and there has been some success in that, is there going to be some sort of amnesty scheme for voluntary settlement if people come forward and are willing to settle their dues?

A: Well, we have left it to the bankers to decide. The government as I said earlier is not interfering in any of these processes, and I think that’s truly the empowerment that these bankers were always yearning for. Micro-managing the banks’ processes is something this government has not indulged in. We have brought in the legal framework through the IBC process, through the NCAT, NCLT and the National Company Law Appellate Tribunal (NCLAT) and all the systems and processes have been provided to the bankers. The platform is available, and now within that…… to take their decision if there is a genuine promoter who has had business losses which are for reasons beyond his control, is not a willful defaulter, is not committed a fraud. The bankers are permitted to take a certain view, if at all there is a genuine promoter who has not created these, who doesn’t have a fraud or a willful default but is incompetent to run it, then certainly the bankers will have to take a different call.

Q: I think that’s a very important line, a thin line on that because what our investigations threw up is that almost 80% to 85% of directors who are willful defaulters were coming up in one way or the other, so there was a some sort of a nexus which was going on amongst a certain … of people whereas the average businessman who really wants to make a difference is not necessarily responsible for it?

A: Absolutely, you have hit the nail on the head, absolutely correct. And I think this is something which probably existed in Indian Banking 15-20 years ago, 30 years ago. Until 15 years ago, I remember when anybody took a loan from a bank, you had the bank’s credit officers go into the marketplace, talk to the other competitors in the business and find out have you heard of this company, how is this promoter. If I am giving money to a cotton yarn dealer, they would find out from his customers how is he as a supplier, they would find out from his suppliers that does he pays his bills on time.

So you always had an informal mechanism on the ground in the market place where you verified the antecedents and capabilities of promoters whom you lent money. I have gone through that process in my earlier days, they would look at your credentials, your education, your market reputation, and then accordingly decide whether to keep increasing loans, how much loans to give. I think over a period of time, and as I said, particularly during the 2008 to 2014 period when the banks just completely gave money indiscriminately. You saw a lot of those checks and balances being thrown to the wind.

Q: Ok, Minister I have to ask you now. You have been talking about NPA cases and you said that several of them came up between 2008 and 2014, but the biggest cases that we have, the high profile cases, are you hopeful that within the present tenure of this government, you will be able to resolve them?

A: Well, you can see for example, the first large resolution, of course, there are many smaller resolutions, was done recently where even the liquidation value was probably half of what was recovered. The expectation was that if nobody bids and it goes into liquidation and has to be literally sold as not as a growing concern, you will get 20,000 crores, as against that the banks were able to recover 35,200 crores other operational creditors were able to recover 1200 crores and you actually saw almost the entire principal being recovered.

And on top of that, you still have a 12% equity for the banks to get an upside going forward. So in some sense, such success stories will encourage the system to perform even better. There is a possibility of a second resolution which the Supreme Court has cleared yesterday, which is not small, it’s a 100% recovery of the entire dues and even more.

Q: I think that’s 5000 crores right there?

A: Whatever! The point I am making is there will be some very good cases and there will be some cases where it has almost already become too late to recover.

Q: So, the Niravs and Mallyas get sorted out within maybe a year or so?

A: Well, we have brought in the Fugitive Offenders Bill also which is getting operationalised and activated. I am sure we will get the cooperation of foreign jurisdictions, so we’ll be able to bring to book all these people.

Q: If you can elaborate a little bit on the Fugitive Offenders Bill. How is that different and how does it give the government more teeth to be able to hold these people accountable?

A: Well, I think it gives you ability to be able to take their properties, for example, and ensure that they don’t have the cake and eat it too. They do not run away and also are enjoy the ownership of their assets and wealth in India. It gives us a possible opportunity to approach the foreign governments for faster resolution of the process of deportation. And I am very confident that the whole world today is becoming more and more conscious that we have to cooperate with each other so that we can get economic offenders to book just the same way as we get other criminal activities.

Q: Ok. I think that sends out a message. I have to ask you on another set of loans which have come due and these are farm loans which is another drain sometimes on banks assets until government steps in and recapitalises them sometimes. Is there also thinking on farm loans in government right now?

A: No, let me first of all categorically state that the farmers’ loans are not a drain on the system and the farmers are possibly the most deserving people in this country who should get loans at the right time, who deserve to get crop loans when the cropping patterns and they have to sow their crops and for the seeds, for fertilizers and they are possibly the most vulnerable section of society also. So, I think bankers and this nation and each one of us are only doing our duty to the farmers of this country when we ensure that they get adequate credit to ensure that the food security of India.

And we are very proud of our farmers, who have today made India not only a self-sufficient nation, but they come up to the demands of this nation. Look at what happened in pulses. India was a largely pulse importing country and here we have a situation today that we are now going to become net exporters of pulses and that gives so much relief to every consumer. Every lady in this room will appreciate that pulses which had gone up to a 130-140 rupees a kilo, 5-6 years ago are now available at less than half the price. And the Indian farmers are also benefiting with good value for their product after the Minimum Support Prices were raised significantly in the Budget by the Modi Government. So, we are very conscious, we respond to the farmers’ issues very quickly, and farmers are vulnerable in terms of drought, in terms of their dependency on the vagaries of nature and the state governments wherever such difficulties have come up have truly responded and ensured that the farmers get a better deal.

Q: Ok. How is this all playing out in a big jump that we had in ‘Ease of Doing Business’ ranking for India last year? Is this helping us play out something in this year? Is there a target this year per se?

A: I think it’s a holistic situation. The entire environment plays a role in the future of the country. After all, you saw 7.7 percent GDP growth only in the last quarter and this to my mind, is sustainable and it will grow further, given the mood of the nation being very positive, the mood being one where honest entrepreneurship is appreciated, is encouraged, is given a fair and level playing field.

After all, I have often given this example, particularly, during the days of demonetization and subsequently during GST. In a cloth market, for example, there are 10 shops, 8 of them have been doing their business honestly, paying their taxes honestly, running a kosher business and if one or two of them don’t pay their taxes honestly. They have two sets of books – one is official, one is unofficial. Obviously, they have a price advantage over the others and they are able to sell their goods at a cheaper price. Now, what do the other eight do, they either have to join the bandwagon or they have to, there has to be some check on these two, so that everybody can come on a level playing field, everybody pays the same taxes and honest taxes. And then competition is on the basis of quality of service and quality of goods.

And I think that is what India today is moving towards. An era where in a uniform tax structure across the country, thanks to Prime Minister Modi and the deft handling of the GST Council and the entire process by Honorable Finance Minister Shri Arun Jaitley ji, that we finally have a system in the whole country where there is uniform tax, where everybody has a level playing field, where the consumers know exactly what is the element of tax on any product that they are buying.

In the earlier days, a consumer never knew how much is the element of tax in the price of goods that they were paying. There was an excise duty, there was an Octroi, there was an entry tax, there were some cess of different sorts. Forty of these taxes, in different buckets hidden, consumer only probably saw the VAT element, the last tally. Now, they actually know what is the tax on the product end-to-end. And that is bringing in the awareness that I think is good for the country.

One small input for you, the fact that GST collections for the month of April reported 7 days ago, have shown 94,000 crore rupee collection, is a great signal of the success of the GST story. Usually, April has about 7.1% of the annual indirect tax collection and if we extrapolate that, you will see that the budgetary expectations also could be exceeded going forward in a growing growth trajectory and where the mood of the nation is very positive that consumer demand is showing unprecedented growth and I have been talking to different sectors.

If you read the papers, almost every sector, the steel, cement, auto, power, coal, mining, almost every sector is looking up. There is consumption, heavy construction demand. You go to the different individual industries; we are finding good demand, wherever they need any support the government is proactive. So, we have already started discussing with the textile industry, particularly to encourage exports. We have started the process of looking at what more can be done in consultation with the Commerce Ministry to give a leg up to exports, to give a leg up particularly to the MSME sector. We currently have a fortnight going on, and I’ll take this opportunity to inform the people at large and the community at large that we have a 15-day fortnight going on right now where you can walk up to your GST Office, State or Central, and sort out your GST refund issues in a very-very simplified manner.

So that process is going on right now, particularly for exporters, we have made it a very simple process. They can give a self certificate if their refund is less than Rs. 10 lakh. If their refund is more than Rs. 10 lakh, they can give a certificate by a Chartered Accountant who audits and gives that certificate. And then at the time of final audit, the accounts will be sorted but we will give the refund right way.

Q: That was going to be my question, but the health of the government finances and since you have answered it, I just want to end it on a slightly larger broader question for which we want your opinion. In this, you mentioned the insolvency and bankruptcy code, there has also often been a social stigma in India about bankruptcy, somebody declaring bankruptcy. Somehow when tax raid happens or when frauds happen, there is not the same amount of social stigma as when somebody admits that we have failed. How do we move beyond that?

A: I think this is a process that will take, that will happen over a period of time. It has its own process. I remember reading that Abraham Lincoln, the Honourable President, First President of the United States of America, had failed in multiple businesses before he became the President of America. So, I think if there is a willful defaulter, if somebody who has done a fraud, that itself has a message for the people of the country and there may be clearly signs of a social stigma over there. And I think the people of India are very smart. They understand good and bad, but if there is a genuine business failure, somebody has not been able to be as successful as he planned to be, for reasons very often beyond his control. Maybe the demand didn’t come up to the expectations that he had, maybe he didn’t get the right machinery and the quality of the product was not as good as he had expected it to be. If there are some genuine failures, I think the people of India also recognize that. It is a process that over a period of time will get fine tuned and we’ll really be able to differentiate between the right and the…..

Q: Right, Minister Goyal, thank you very much for your time. We have a short presentation sir, we have been, out of our research we have managed to put together 60 hours of analysis and we have tried to get something fruitful out of it, so we have prepared a 10-point charter which we will present to you. So if I can call the team on stage please.

A: I must complement you for this initiative. I am delighted that you took up this subject, maybe it’s not a subject of interest to a very large number of people who are not economic policy savvy but truly, this resolution of NPA, it is going to be a game changer for the future of the people of India and I am delighted that you have recognized the good effort that Prime Minister Modi, Mr Jaitely and the entire team in the government has taken forward to finally bring an end to misuse of the Indian Public Sector Banks.

Congratulations to all of you!

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