Varun Gandhi confuses loan waiver with loan cancellation, ends up advocating for bank privatization while opposing it

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On August 6, BJP MP for Pilibhit Varun Gandhi in a tweet targeted the central government on “cancelled loans” over the past five years and confused it with “loan forgiveness”. Varun Gandhi shared an infographic made by All India Bank Employees Association (AIBEA) based on the response given by Minister of State for Finance Bhagwat K Karad on August 2 in Rajya Sabha.

In his tweet, Gandhi wrote: “The House that yearns for a ‘thank you’ for giving a 5kg ration to the poor. The same house says that in 5 years the loan of corrupt “money animals” up to 10 lakh crore has been canceled. The names of Mehul Choksi and Rishi Aggarwal are leading among those taking “Free Ki Rewari”. Who has the first claim on the public treasury? »

Varun Gandhi seems to be following in the footsteps of his cousin Rahul Gandhi and canceling a mistaken loan with a loan waiver.

Difference Between Canceled and Waived

From time to time opposition leaders have used the term expunged in a completely misleading way. They describe as if the banks forgot about the loans when they canceled them. In reality, a bad loan is written off to remove them from the balance sheet. This is a regular process that banks follow as per RBI guidelines.

A balance sheet should reflect the true position of assets and liabilities. Therefore, the banks must cancel the loans granted to borrowers, which are “assets” for the banks, which have now shown signs of weakness. If they don’t cancel the loans, it’s like pretending to have a high quality asset, when in fact the quality has deteriorated. Will you trust an entity that does not give a true and fair view of its assets?

Second, if a loan is not written off and is maintained as a sound asset (when in fact it is a non-performing asset), banks can continue to recognize interest income on the loan, on an accrual basis. This has two impacts: first, the bank artificially inflates its income by accruing interest based on accrued interest, income which it may or may not receive (since the loan is in effect an NPA). Second, the bank must pay taxes on this interest income. Both are undesirable. A write-off prevents banks from doing this, because once a loan is “written off”, the recognition of income on it is based on the actual receipt of income and not on regularization. Banks keep collecting interest on these loans, but they can now only recognize them as revenue when they receive them.

Therefore, write-offs are a purely technical accounting entry. Loans that cannot be repaid by the borrower in the normal course of business are written off. Even when these loans are written off, various collection proceedings such as collection lawsuits filed in the DRT/Court. and the action initiated under the SARFAESI Act continues. Now the bank takes control of the assets secured by these loans and sells them to recover the loans.

When loans are “forfeited”, however, the loaned money is lost forever.

Rahul Gandhi and his complicated relationship with loans

There have been countless occasions where the leader of Congress has intentionally or unintentionally confused loan forgiveness with loan forgiveness. For example, in December 2020, he spread misleading information about the so-called “waiver” of industrial loans by the Modi government. He offered a magic figure of Rs 2,37,206 crore, saying the Modi government had forgiven some industrialists by ‘forgoing’ their loans. According to Rahul Gandhi, the huge amount, which he says was “waived” by the government, could have been provided to 11 million families during the difficult COVID period, each with Rs 20,000.

Gandhi was not the only one to get on the ‘confused’ cart. Delhi Chief Minister Arvind Kejriwal, who continues to be upset with Prime Minister Modi’s “free ki revdi” declaration, also targeted the government with a similar tweet. Kejriwal wrote, “Providing free education to the children of the country and arranging free treatment for every Indian is patriotism, virtue, religion, nation building. It is treason against Maa Bharti to give free revri to her own friends.

Kejriwal had posted a photo of a newspaper clipping which spoke about the statement made by MoS Karad to Rajya Sabha. Interestingly, Kejriwal is an IIT graduate and former income tax official and one would expect of all people to know the difference between loan forgiveness and loan forgiveness. Except he’s also a politician now so the facts don’t seem to matter.

Incomplete analysis of AIBEA data

AIBEA is an organization made up of bank employees, and we can expect a better understanding of the data. A union like AIBEA is also expected to publish complete facts and not just incomplete information that could mislead the general public. On August 3, they posted said infographics on its social media accounts and urged the government to collect bad debts.

Source: Facebook

There was no mention if any of the amounts had been recovered by the banks and which banks had canceled the loans according to information provided by MoS Karad. Incomplete information gave leaders like Varun Gandhi a chance, and similar incomplete information by mass media enabled figures like Kejriwal to mislead the public.

MoS Karad explained canceled loans and recoveries made by banks

MoS Karad was responding to Congressman Mallikarjun Kharge, who had requested information on bad debts written off by commercial banks and public sector banks over the past five years, defaults and collections made by banks in the sectors commercial and public. In his written response, MoS Karad informed the house that over the past five financial years, commercial banks have written off bad debts worth Rs 9,91,640 crores.

Amounts written off in the last five years. Source: Rajya Sabha

He further added that according to data provided by the Reserve Bank of India’s Central Large Credit Information Repository (CRILC) database, there were 2,207 voluntary defaulters in 2019 with global exposure to the credit of Rs 5 crore and above. In 2020, the number increased to 2,469, followed by 2,840 willful defaulters in 2021 and 2,790 in 2022.

Voluntary defaults during the last four fiscal years. Source: Rajya Sabha

According to the data, State Bank of India wrote off Rs 2,04,486 crores in five years. Similarly, Union Bank of India wrote off 1,42,339 crore, Punjab National Bank wrote off 92,340 crore, Bank of Baroda wrote off 75,701 crore and Canara Bank wrote off 60,035 crore. Other banks listed by the MoS include Bank of India, Central Bank of India, Indian Bank, Indian Overseas Bank, etc.

Amounts of loans written off over the year by public sector banks. Source: Rajya Sabha

Major defaulters included Gitanjali Gems Limited which had Rs 7,110 crores of bad debts, Era Infra Engineering Limited had Rs 5,879 crores of bad debts, Concast Steel and Power Limited had Rs 4,107 crores of bad debts, REI Agro Limited had Rs 3,984 crores of bad debts. loans and ABG Shipyard Limited had Rs 3,708 in bad debt among many others.

Top 25 voluntary defaulters. Source: Rajya Sabha

Regarding the recovery part which is missing from Varun Gandhi, Kejriwal and many media houses, MoS Karad mentioned that SBI recovered Rs 41,006.94 crores of bad debts which were written off during this period, and the process of recovering the remaining bad debts is ongoing. by the bank. Similarly, Union Bank of India recouped Rs 6,955.12 crores, Punjab National Bank recouped 11,821.37 crores, Bank of Baroda recouped Rs 9,540.04 crores and Canara Bank recouped Rs 7,348.52 crores. The Indian government is using all possible means to recover bad debts, and the results can be seen in the statistics. In recent years, the process of recovery has accelerated, and year on year recovery has increased for almost all commercial banks.

Bank-wide recoveries over the past five years. Source: Rajya Sabha

Not to mention, it was reported in February 2022 that Rs 18,000 crore had been recovered from three defaulters including Vijay Mallya, Nirav Modi and Mehul Choksi.

Amusingly, the infographic shared by Varun Gandhi explained how banks should not be privatized and believed that this data on loan write-offs was strong evidence that banks in India should not be privatized. However, he seems to have missed the part where the banks that actually lent the written-off money were all public sector banks. If so, this actually argues in favor of bank privatization. But why let facts get in the way of narrative construction.

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