If the addition to bad loans on banks’ books between 2011 and 2015 was more than the quantum of money lent by them in that time, as it seems to have been, it cannot be good news. To be sure, it’s been a tough environment with the economy slowing dramatically – all the way from 10% to 5% – and there was a fair bit of indiscriminate lending not to mention the government’s dithering on policymaking and arbitrary rulemaking. But the extent of the damage at Rs 2.4 lakh crore is truly colossal because it means a large amount of costly capital is being set aside as provisions and, therefore, effectively blocked. A large chunk of this would have come from the corporate sector especially from bigger companies, the Kingfishers of the world, and the bad news is there could be more. While senior bankers including Arundhati Bhattacharya, Chairman State Bank of India (SBI) have pointed out while the stress in large corporate accounts may have subsided somewhat, though there’s a lot of it in mid-sized and smaller companies, one is not sure whether large firms are truly over the hump. After all business groups including those of Essar, Reliance ADAG, Jaiprakash Associates and Adanis, to name a few, remain heavily indebted and some of them like Essar have defaulted in the past. It’s possible they will survive the current slowdown by selling assets they have accumulated over the years though evidence of such transactions has been limited to the Jaiprakash Group and a few others like GVK and Lanco. One reason for this is that there are virtually no takers for assets within industry – the AV Birla Group has emerged as one – and even private equity players have stayed with small assets such as roads. Indeed, not too many foreign corporations have stepped in to say they will take over a power plant or a steel plant.

To be sure, these companies may yet survive the slowdown and may not end up in trouble like Amtek Auto which is struggling to match cash flows with loan repayments. But it’s possible given the recovery, if there’s one at all, is so slow, there could be a few more Amteks out there. Again, even if a dozen Amteks default, it’s not going to bring down the banks but if the NPA cycle doesn’t end soon, banks are going to be so badly bruised, the smaller state-owned lenders may just not recover. It’s in this context that Bhattacharya’s observation is important; the thousands of mid-sized enterprises, whose cash flows have been choked off by larger companies, need to be nursed back to health quickly. Clearly, one can’t coerce large buyers into repaying smaller vendors, though it probably should be done, but it’s important to assist smaller units who are more deserving of support. Perhaps, the government could use SIDBI’s infrastructure and that of the banks, to find a way to either fund some of these units till business looks up or assist them in recovering their dues from their customers. Even before it gets going on the MUDRA scheme, existing corporate units need to be resuscitated else, these will soon turn NPAs.