Real Objective of Note Bandi — NPAs, Write-offs

I read some interesting news reports today. Actually these reports were simply quoting the hopes of some unnamed Finance ministry officials. But what was interesting in these reports was some talk of Bank NPAs.

If I summarize these reporting then these things are being said :

Right now the Banks are busy distributing and depositing cash. The emphasis was on distribution as well.

After the Note Bandi the public sector banks will be in a position to earn more profit.

Note Bandi will change the face of indian banking sector.

Eventually, the Note Bandi exercise will be a profitable exercise for the Public Sector Banks.

The piled up cash chests of the banks will strengthen the banks, and this will enable them to give cheaper loans to the public.

The public sector banks will get strengthened that they will not depend on Government for annual bailouts (For instance in Financial Year 2016-17 the budgetary allocation was Rs. 25000 crore)

If the need be then even more money will be provided by the Government to the banks in distress, says Finance Minister Mr. Arun Jaitley.

For the Public Sector Banks the numbers for the third quarter (Oct-Dec 2016) will show an improvement. As these banks will be sitting on a fat cash chest. That apart, the banks have earned good interest on the money invested in Government Securities. That apart, there will be decline in NPAs as well, as in the quarter of Note Bandi Rs. 66000 have been deposited by Loans defaulters.

Banks are now in a position to decrease the interest rates on loans. More cash in banks means more loans can be sanctioned.

Are you confused by the above mish-mash. More so if you read such articles carefully. As they often contradict themselves.

First of all, how much money is being deposited in the banks and how much money is going out in the form of withdrawals?

Secondly, lets talk about NPAs. At the end of December 2015, as many as 701 accounts with bad loans (exceeding Rs 100 crore) owed public sector banks (PSBs) Rs 1.63 lakh crore with the State Bank of India accounting for the biggest chunk. Gross NPAs of PSBs rose to Rs 3.61 lakh crore at the end of December 2015.

If for a moment one assumes that Rs 66,000 crore of this bad debt is regained, then what about Rs. 2.95 Crore of bad loans (even when we look at NPAs of end 2015)?

During Note Bandi, bad debt of Rs. 15000 crore was also written off (in Hindi, roughly translates to Karz Mafi). They were defaulters with debts in thousands of crores.

Thirdly, would become cheaper for common man? This only the time will tell.

Thus to conclude, the Note Bandi exercise which was marketed as an onslaught on black money, terror, fake currency and blah blah… is finally culminating into the real objective, decreasing NPAs in bank balance sheets and loan write-offs.

What is in store for a common man, only time will tell. Right now, all the note bandi exercise brought was enough of hardships.