Ignorance is not always a bliss

 

Prashant Bhushan’s opinion (on Modi government’s alleged writing off bad loans of big companies) is wholly faulty and is based on a common misconception. He should have, as a lawyer, studied the subject before attacking the Government. I say so, because the Government has no role whatsoever, at all.
Banks are obligated to write off bad debts under the accounting standards which are mandatory. Banks write off thousands of crores of rupees every year. If they don’t do so, their balance sheets will not disclose the true and fair state of its financial affairs. Bad loans, be it of Nirav Modi’s running into thousands of crores or of a small trader, if not recoverable will have to be written off from the accounting point of view. Otherwise, banks will collapse.
Government providing for the writing off the agricultural loans and the Banks writing off corporate bad loans are two entirely different things.
Banks writing of bad loans doesn’t mean they will stop all recovery steps. They will continue to take all steps to recover till the last penny is recovered. Writing off bad debts from the Accounting point of view and writing off loans as ameliorative steps are entirely different things. Nothing in common.
Where the Banks give up all recovery steps and write off the agricultural loans, they won’t have to bear the burnt because the Government will be compensating them by budgetary allocations. In reality, there is no write off of agricultural loans by the banks. The write off is by the Government.
Banks are commercial institutions. There is no doubt that corruption has penetrated deep into banking and that public money is plundered. But that doesn’t mean that every default is the result of fraud. The Banker when lending is undertaking a commercial activity which is intrinsically risky. And where the debts are not recoverable it will have to be written off whether the default is bonafide or not . There is no other choice.Private Banks, NBFCs, co-operative banks, all write off bad loans worth hundreds of crores of rupees. Has it anything to do with Modi? If they don’t write off bad debts from the Accounting point of view, they are committing a grave financial offence.
Prashant Bhushan, ignorance is not always a bliss, please remember.