Column: Banking on Modi

Mar 19 2014, 03:06 IST
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SummaryThe banking crisis requires the next PM, Narendra Modi or whoever, to take some tough decisions

Whether it is Mukesh Ambani or Mukesh, the neighbourhood car cleaner, all have taken huge bets on India, bets that require India to grow at 9-10%, not the anaemic rates it has been growing at for the last two years. That’s what the pent-up anger against the government really boils down to.

Though it is fashionable, and perhaps even correct, to blame crony capitalist India for borrowing huge amounts from banks with little worthwhile collateral (at least, in retrospect), the fact is all the borrowers envisaged India continuing to grow rapidly, to make good all the investments they had made. And since it hasn’t, all those that have borrowed are in deep trouble. The problem is that even if growth was to pick up, moving beyond 5.5-6% will be difficult in the next 2-3 years, and that’s not anywhere near good enough to make their investments whole—that, in turn, will bankrupt the banks, the subject of this column.

While total loans from the banking system are up from R50.7 lakh crore in FY12 to R58.8 lakh crore in FY13, NPAs + restructured assets are up from 7.63% to 9.25% for all banks—this was up to 10.2% in September 2013—and from 8.9% to 11.1% for PSU banks.

There is also middle-class India that borrowed aggressively, to fund not just its purchases of new mobile phones, but also college education for its children, often overseas. Education loans are up from R43,000 crore in FY11 to just under R70,000 crore in January 2014. To repay these loans, the salaries these students need are the type that require India to be growing at 9-10%, not half that.

Nor is this angst restricted to just middle-class India. There are the poor, the Mukeshs and others who are, from their miserable salaries, taking out R300-500 per month to pay for the school fees of their children, or tuition in case they send them to the ‘free’ government schools, so that they can get good jobs once they graduate. For rural India, according to Pratham, while 19% of 6-14-year-olds were enrolled in private schools in 2006, this is up to a whopping 29% today. It gets worse since even those enrolled in government schools are spending money on private tuition. Add this, and 46% of kids in rural India are getting private schooling of some sort—the number is a high 35% even among the non-affluent. For urban India, the numbers are

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