According to RBI data, in last four years of Modi government loan write offs far exceeded the amount of loan recovery. “21 State-owned banks ended up writing off Rs 3, 16,500 crore of loans even as they recovered Rs 44,900 crore written off on a cumulative basis” reported Indian Express. Rahul Gandhi tweeted the report and claimed “Modi’s India – For Common Man: Notebandi-line up and put your money in banks. All your details into Aadhar. You can’t use your own money. For Crony capitalists: Notebandi-convert all your black money to white. Let’s write off 3.16 lakh crore using common man’s money.” Here, Rahul Gandhi suggested that the government does not intend to take the loan money back.
Modi's India-
For Common Man: Notebandi-line up and put ur money in banks. All ur details into Aadhar. U can't use ur own money.
For Crony capitalists: Notebandi-convert all ur black money to white. Let's write off 3.16 lakh Cr using common man's money. https://t.co/M0W2KUicFH
— Rahul Gandhi (@RahulGandhi) October 1, 2018
Rahul Gandhi’s ignorance of economics is very much evident here. Despite his education from Harvard University and Cambridge University, Rahul Gandhi is not able to differentiate write offs from loan waivers. Banks write off loans to clear their balance sheets but this does not mean that borrower does not need to pay money back while loan waiver means borrower need not to payback. Loan waivers by the government are mostly done to farmer and MSME borrowings. Finance minister, Arun Jaitley clarified that write off does not mean waiver “This however does not lead to any loan waiver. Recovery of loans continues rigorously by banks. In fact the defaulting management of most insolvent companies have been removed under the Insolvency and Bankruptcy Code (IBC),” wrote Jaitley in a Facebook post.
As per RBI guidelines & policy approved by Bank Boards, non-performing loans, including, those in respect of which full provisioning has been made, on completion of 4 years are removed from the balance-sheet of the bank concerned by way of write-off; which is not loan waiver.
— Arun Jaitley (@arunjaitley) October 1, 2018
When NDA government came to power in 2014 it inherited large scale NPAs in the banking sector. Due to aggressive lending from 2008 to 2014 total outstanding loans of PSBs increased from Rs. 18 lakh crore in March 2008 to about Rs. 52 lakh crore by March 2014.
— Arun Jaitley (@arunjaitley) October 1, 2018
Public sector banks in India used to hide the loans through fudgy accounting practices. Under the tutelage of Raghuram Rajan, RBI forced banks to identify bad loans in the balance sheet and use transparent accounting practices. This was the reason behind exponential rise of bad loans in 2014 to 2018. These loans were given during the period of previous government but banks did not identify many loans as NPA despite the fact there were few chances of to get the money back. However, strict enforcement of laws by RBI and the government forced the banks to show bad loans on sheet. This led to expansion of NPA. “The main reason for this spurt in NPAs is that gross advances of PSBs increased rapidly as a result of aggressive lending from 2008 to 2014. Total loans outstanding of PSBs, which were about Rs 18 lakh crore till March 2008, increased to about Rs 52 lakh crore till March 2014,” said Jaitley.
Many large NPA cases got solved through Insolvency and Bankruptcy Code and many more are under process. The transparency in business practices and accounting has made India rule based capitalist economy. Rahul Gandhi is trying to spread false information while the government intends to clean up the mess created during 10 years of his party rule. Last two central bank governors, Raghuram Rajan and Urjit Patel certainly deserve the credit for initiating central banks cleanup process.