To say that something is rotten in India’s financial sector is to state the obvious. The UTI imbroglio has stalled parliament, precipitated a prime ministerial threat to resign and strained relations within the ruling coalition, apart from causing anxiety, hardship and worse to large numbers of small investors. Close on the heels of the UTI crisis comes the news that the country’s oldest development finance institution, IFCI, would default on debt servicing unless the government bailed it out with fresh infusion of funds. It turns out that IFCI’s gross non-performing assets are close to 30 per cent. With two-thirds that level of NPAs, IDBI, the biggest public sector development finance institution, is not far behind. ICICI claims an NPA level of a little under 10 per cent. The fact is that all these figures have limited credibility, given the financial institutions’ expertise in evergreening loans – that variant of the art of throwing good money after bad – under which a fresh loan is granted to a debtor for the purpose of servicing past loans that escape, in this manner, being classified as non-performing.
