Context and Genesis
- 2008 Global Financial Crisis Impact: India launched a stimulus programme, injecting liquidity to boost demand.
- Unintended Consequence: Stimulus met infrastructure gaps and low manufacturing capacity, resulting in inflation.
- Policy Shift: Government prioritized infrastructure investment, encouraging private sector participation via Public-Private Partnerships (PPPs).
Bad Loans
Bad loans, also known as non-performing loans (NPLs), are loans where the borrower fails to make payments (interest or principal) for an extended period, typically 90 days or more, and are considered risky for lenders because they are unlikely to be repaid in full.
- Definition
- A bad loan, or non-performing loan (NPL), is a loan where the borrower is in default and has not paid the agreed-upon principal and interest repayments for a specified period.
- Causes
- Non-performing loans can occur when borrowers experience financial difficulties, job loss, or other situations that make it challenging to continue making repayments.
The Book’s Focus
- The Dirty Dozen: India’s Twelve Biggest Corporate Defaulters by N. Sundaresha Subramanian investigates the fallout of India’s post-crisis policy.
- Core Focus: 12 largest unpaid loans that created a mountain of non-performing assets (NPAs).
- Notable Defaulters: Ruias (Essar Steel), Gaurs (Jaypee Infratech), Mittals (ABG Shipyard), among others.
- Trigger: Gained renewed attention after a borrower failed to block its release in Kolkata’s Alipore court.
The PPP Model and Systemic Failures
- Inappropriate Partner Selection: Contracts awarded to inexperienced firms—e.g., a TV broadcaster bagging large infrastructure projects.
- Flawed SPV Structure:
- Private players bore minimal risk but shared profits.
- Projects executed through Special Purpose Vehicles with non-recourse clauses, leading to poor credit discipline.
- Misuse of Loans:
- Widespread gold-plating of project costs.
- Funds diverted to unrelated entities or political funding.
- Financial Ecosystem Weaknesses:
- Banks lacked project finance skills.
- Absence of a corporate bond market meant short-term deposits funded long-term projects, causing maturity mismatch.
Structural Problems and Political Fallout
- NPAs became a major election issue in 2014, symbolizing corruption and mismanagement.
- Banking Crisis Origins: Not just bad intent, but systemic design flaws allowed bad loans to mushroom.
- Book captures the political economy of credit misuse, but misses deeper historical context.
Critique of the Book
- Strengths:
- Strong investigative reporting.
- Factual account of India’s biggest defaulters.
- Weaknesses:
- Lacks historical continuity—no analysis of India’s repeated failures since the 1980s (e.g., BIFR era, RBI frameworks).
- Misses discussion on regulatory pushbacks, such as those highlighted in Urjit Patel’s Overdraft.
- Feels journalistic rather than analytical.
Broader Implications
- Despite multiple reforms, India’s credit ecosystem remains vulnerable to misuse.
- Recent trends: Accelerated write-offs, regulatory dilution, and continued political-business collusion.
- Notable Cases:
- Nirav Modi’s fraudulent borrowings.
- Vijay Mallya’s escape despite red flags.
- he book underscores India’s credit accountability crisis, where penal consequences are rare.
