More importantly, it is essential to know that there are no more such assets in the closet or the pain will get prolonged. Policy makers, economists, corporates and analysts were gung ho about growth which supported over investment.(The writer is Chief Economist, CARE Ratings. In case of several such ventures, the promoters abandoned the projects leading to a high level of stalled projects that were estimated to be in the region of Rs 4-5 lkh crore when the NDA government took over. In Indian ventures typically investment is debt financed where equity is a smaller part and hence when projects are abandoned, the banks had to bear the brunt.The issue today is that it is not clear whether or not all the NPAs have been identified and whether these sectors are clean. Therefore, while the judgment was incorrect, it would be hasty to think beyond commercial calls that were made. Stalled projects fed back into the stainless steel fasteners manufacturers engineering sector where surplus inventories resulted followed by surplus capacity.

Power plants were started with enthusiasm, but the logjam in coal allocation meant that the companies could not produce power. This was followed by the IBC with the leading cases being taken up in different batches. As the scheme was supported by the government and RBI such an evergreening process was never questioned. India ranks fifth out of 39 major world economies plagued by bad loans, according to a report by Care Ratings.Heavy investment in telecom through spectrum auctions delivered capacity but combined with falling prices affected the growth prospects. Countries with higher NPA ratios than Indias are part of the distressed group of nations in Portugal, Italy, Ireland, Greece, and Spain. These numbers grew over time.Indias bad loan problem ranks among the worlds worst as the NPAs (non-performing assets) accumulated by Indian lenders are higher than those of banks in most major economies, including US, UK, China, and Japan. Low interest rates and high growth in credit helped to spur the economy which was driven by investment in sectors such as telecom, steel, mining, power, engineering etc. set back progress in investment.

Subsequently, in end-2015, a decision was taken that there should be a fair recognition of NPAs-asset quality recognition, which transformed these restructured assets into NPAs.The UPA and NDA governments claimed that these projects were cleared, but most of them became unviable as the backend were in disarray.Was there any cronyism involved? This could have been there in some cases, but the large numbers we are talking of in the region of 12% of outstanding credit as stressed assets cannot be linked to such cronyism. This was probably the error made as the loans got rolled over, especially in these sectors which are today the big NPAs. Hence the high NPAs witnessed especially in the infra sector are a result of all these storylines which have played out. Trouble started when there were a series of what can euphemistically be termed as irregularities in several sectors involving natural resources and policy. At that time it was never expected that the 8% plus growth in GDP could be any other number and with a touch of hubris was assumed that there was only one way to go.

Should they have been identified earlier? Here the answer is yes, because the concept of restructured assets was flawed to begin with which only deferred the problem without solving it. But it could also mean that future investment could be impeded as the fear of failure of the projects can keep investment back. It was felt that India was poised to grow at an accelerated pace with the decoupling proves from the world economy setting in. This led to the creation of NPAs in these sectors.The story takes a twist when the Corporate Debt Restructuring concept came in. It was a case of project failure where the business models did not work. The resolution process is in progress and the end result would be important as it will determine the future direction for these industries.Can the banks be blamed for this creation of NPA stock? The answer is not clear because when money was lent, it was never expected by anyone that they would fail as they were the leading sectors. Telecom appears to be better placed while in case of steel, the availability of bids for the NPAs is encouraging. In fact there was a perverse incentive to reclassify and restructure these loans under this umbrella. In fact, there was strong justification for reclassification as restructured assets and it was argued that these assets failed since external conditions had deteriorated and hence different kind of treatment was required.

This got reflected more in the PSB balance sheets as they were primarily financed by them while the private banks kept a distance.The advantage of having extra capacity in the form of lacunae in the infra sector in particular meant that there was large scope for investment. It was a risky concept to begin with because while a special CDR cell discussed these issues and allowed for restructuring the debt in terms of tenure and interest rate, it ended up being a case of ‘kicking the can’, wherein the problem was deferred. In fact the entire growth story of China was based on heavy investments in infrastructure, which led to the double digit growth rates on a sustained basis.The genesis of the NPA problem can be traced to the post financial crisis era when loose monetary policy was followed to prop up the economy.). At the margin there could have been governance issues where specific industrial groups were favoured, but almost all these NPAs were loans given to reputed companies in their fields. The steel industry was affected by non-availability of coal and iron to begin with followed by excess capacity which resulted as steel was dumped by China.

The iron ore scam, coal scam, 2G scam etc.Is the present resolution process a solution? To an extent yes, as it will keep aside these bad loans which have built up. The subsequent efforts at resolving the NPA mess through different schemes were apologies at resolution. Add to this the unprofitable Discoms which were not able to honour their PPAs as they were making heavy losses, the power sector went further downwards. The reforms at the Discom level have not worked their way, which is a concern. They are critical components of the growth process. Further, bankers too may be unwilling to lend to these sectors and prefer the retail route. The views are personal. Projects came to a standstill on account of these scams combined with what was called policy paralysis where bureaucrats did not want to take any decision