Even as frauds and murky dealings continue to tumble out of the closets of the biggest names in Indian banking, there is danger in assuming that the problem is restricted to that industry.
India’s banking crisis isn’t just about the likes of Punjab National Bank, Bank of Maharashtra or ICICI Bank Ltd. India’s corporate sector, including some of its largest companies, is as much a part of the toxic environment that is now unraveling before us.
Every Indian company, large and small, has at some stage put pressure on bankers to bend the rules either for sanctioning loans or changing the repayment terms. Even as we rail against the executives and the boards of the banks for conniving with borrowers, let’s not forget who they were conniving with and for what.
The gross non-performing assets (NPAs) of Indian banks are about 10.5% of total advances but within that, loans by scheduled banks to industry account for over 20% of gross advances. These bank NPAs are nothing but the excesses of companies reflected in irrational leverage levels and high default ratios.
Whether it is Rotomac or Nirav Modi, the script remains unchanged. Banks have always been a fertile ground for political and corporate patronage. There’s nothing new about this. For decades, money in the banks has been treated as the personal fiefdom of a few. In the 1980s, there were the notorious loan melas, where politicians doled out funds through nationalized banks without bothering about basic hygiene factors. Often, even the loan application forms would be filled by bank staffers.
Post 1991, with the onset of private banking, it was expected that more care and caution would be exercised. But as the Indian economy moved into high gear following a global surge in growth, Indian companies suddenly acquired a ''voracious'' appetite for bank loans to fuel their many ill-conceived investments. The spigot, once opened, could only lead to the kind of excesses that are being uncovered. Significantly, once the easy-money regime changed, particularly after Raghuram Rajan turned the central bank’s lens on the lending and provisioning practices of the banks, Indian companies’ appetite for investments also dried up.
It is one thing to plan ambitious projects or large acquisitions with the reassuring backing of soft loans at nominal rates of interest and flexible repayment terms and quite another to do so on more stringent forms of financing. The returns needed to service a bank loan are different from those needed to service any other form of financing. Not surprisingly, after 2010, there has been a decline in the share of gross capital formation (GCF) in GDP, from 38.2% to 32.3% between 2011–2012 and 2013–2014, with the corporate sector’s contribution as GCF also falling
If banks have failed to judge the creditworthiness of the companies they have lent to or failed to detect those initial signs of stress before a loan turns non-performing, it is in part because of the elaborate efforts companies make to window dress their accounts. When the chairman of Syndicate Bank is arrested for taking a bribe from the promoters of Bhushan Steel, both are equally culpable and deserve opprobrium. But when Bhushan Steel becomes the norm for corporate behaviour and a symbol of the manipulative power of our largest companies, it is time to worry.
In his 2013 book, Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America, author Charles H. Ferguson refers to canopy ecosystems, which he describes as “worlds of flora and fauna that occur at the tops of very tall trees and exist largely apart from the multiple bio-systems layered beneath them. They do this in part by getting the best access to sunlight, but in so doing they block the sun from reaching everything below”.
By cornering an abnormal share of bank loans, large Indian companies have also created a canopy for themselves, one under which more deserving and needy smaller businesses fail to grow for want of credit.
- According to the passage, what is true about Charles H. Ferguson’s book?
i. The concept of the book described in the passage can be used to explain the mess created by Indian companies in the Indian banking system.
ii. The book describes worlds of flora and fauna that occur at the tops of very tall trees and exist largely apart from the multiple bio – systems layered beneath them.
iii. It was released in 2013Only IIOnly IIIOnly II and IIIOnly I and IIAll I, II, IIIOption
All the three statements are mentioned in the passage in the 2nd last and last paragraphs.
- Which of the following can be inferred from the passage?
i. Many deserving loan applications fail to get approved because of manipulative power of large Indian companies.
ii. Indian companies took more bank loans after the year 1991.
iii. In 1980s, there was a concept of loan melas in India.Only IOnly II and IIIOnly IIOnly I and IIOnly IIIOption D
Statement I and statement II can be inferred from the last and the 6th paragraphs respectively: "Post 1991, with the onset of private banking, it was expected that more care and caution would be exercised. But as the Indian economy moved into high gear following a global surge in growth, Indian companies suddenly acquired a voracious appetite for bank loans to fuel their many ill-conceived investments." while statement III is directly mentioned in the 5th paragraph: "In the 1980s, there were the notorious loan melas" but can't be said to have been inferred.
- According to the passage, which of the following bank(s)/company/companies is/are quoted as example to explain the idea of the passage?
i. Bhushan Steel
ii. Canara Bank
iii. RotomacOnly IIOnly IIIOnly I and IIIOnly I and IIAll I, II, IIIOption C
Statement II is not mentioned as Canara bank is out of scope whereas statement I and III are mentioned in the 5th and second last paragraphs.
- According to the passage, which of the following statement(s) is/are TRUE?
i. An analogy from Ferguson’s book about canopy ecosystems has been used to explain the current Indian banking system and corporate India’s role in its mess.
ii. Banks being a fertile ground for political and corporate patronage is not a recent phenomenon.
iii. Loans by scheduled banks to industry account for less than 20% of gross advancesOnly II and IIIOnly IIOnly I and IIIOnly IOnly I and IIOption E
Statement III is incorrect as the number being talked about is more than 20% as given in 4th paragraph, ‘the gross non-performing assets (NPAs) of Indian banks are about 10.5% of total advances but within that, loans by scheduled banks to industry account for over 20% of gross advances.’ Statement I and II are true and are mentioned in the passage. Statement I is mentioned in the second last and last paragraph and statement II is mentioned in the 5th paragraph.
- According to the passage, what makes Indian companies also responsible for current crisis in Indian banking system?
i. Indian companies form a majority part in the overall loan sanctioned by the banks.
ii. They put pressure on bankers to sanction loans which otherwise, would not have been sanctioned owing to their ineligibility.
iii. Indian companies ask banks to change their loan repayment terms.Only I and IIIOnly II and IIIOnly I and IIOnly IAll I, II, IIIOption B
Statement II and III are mentioned in the third paragraph i.e. ‘every Indian company, large and small, has at some stage put pressure on bankers to bend the rules either for sanctioning loans or changing the repayment terms.’
- According to the passage, which of the following is/are its central idea(s)?
i. The gross NPAs of Indian banks are at an all-time high and the situation is going to worsen in future.
ii. The problem of financial frauds and illegal dealing in Indian banking system is not restricted to the banking industry alone.
iii. Corporate India is equally to blame for Indian banking crisis.Only IIOnly IIIOnly IOnly II and IAll I, II, IIIOption B
Statement II talks about a specific issue and its veracity is yet to be established from the passage whether NPAs are at an all-time high; so, it cannot be the central idea of the passage. The entire passage talks about the role of Indian companies in the current Indian banking crisis by quoting many companies and how they are equally responsible for the current mess in the Indian banking system. The proportion of NPAs relating to corporate India has also been quoted in the passage. So, only statement III perfectly captures this essence.
- Which of the following words is the most similar in meaning of the word ‘opprobrium’ as given in the passage?ApprovalCommendationComplimentExaltationVituperationOption E
‘Opprobrium’ means harsh criticism or censure.
‘Vituperation’ means bitter and abusive language.
'Commendation' means formal or official praise.
'Exaltation' means a feeling or state of extreme happiness.
- Which of the following words is the most similar in meaning of the word ‘unraveling’ as given in the passage?EntangleUniteTwistUntangleKnotOption D
‘Unraveling’ means undo (twisted, knitted, or woven threads).
‘Untangle’ means free from a tangled or twisted state.
‘Entangle’ means cause to become twisted together with or caught in.
- Which of the following words is most similar in meaning of the word ‘conniving’ as given in the passage?SchemingForgettingNeglectingTruthfulnessHonestyOption A
‘Conniving’ means given to or involved in conspiring to do something immoral, illegal, or harmful. Thus, "scheming" is a synonym.
- Which of the following words is the most opposite in meaning of the word ‘voracious’ as given in the passage?SatisfiedEmptyDullGrossStarvedOption A
‘Voracious’ means wanting or devouring great quantities of food.
‘Quenched’ means satisfy (one's thirst) by drinking.
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