Have you ever driven a ferrari at 240 Kph on Indian Roads? It would be a disaster. Indian roads are more meant for Maruti and Hyundai and similar designs. The Day we build roads like Autobahn – we will buy ferraris.

In the same manner – in my opinion – India adopted the Basel standards too soon. Our economy and business nature is not conducive to Basel standards. This is where the problem started. Before Basel – India had longer terms to resolve NPAs and most of the time – the borrower could successfully resolve such an NPA (Case of Postman Oil – a Company in Hyderabad that owed Rs. 6.71 Crore in 1973 as NPA but by 1979 – paid off the entire sum plus interest). Out of 10 borrowers who defaulted – one was Harshad Mehta but 9 were decent borrowers who ran out of some luck. Banks gave them time to repay their debts. even gave them time to sell their own assets so that they would not get distress price. Businesses had 2 years to resolve debts and they normally would repay their debts through sale of commercial paper or sale of certain assets etc. Reputations meant something.

Yet once Basel was introduced it was like bringing a Ferrari on an Indian Road. Our Businesses could not function under BASEL where there is no room for reverses or downturn, no room for any economic issues – nothing. You either repay a loan in 90 days or become a defaulter and get your name listed in cibil. Subsequently you cannot mortgage any other asset and your mortgaged assets will be auctioned off and you will get distress price and you will still end up owing money to the bank. Once Basel came in – Businessmen who had losses found themselves completely hard up – against a system that was simply inflexible. Subsequenly more businessmen decided to hide losses, fudge figures, fake documents etc. Auditors began to be bribed. Bank officials began to enter this nexus and soon a new corruption cycle began to be set up.

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Also under Basel – the power of moratoriums was gone. Interest was now 24X 7 and this meant Russian Mafia technique where huge interest became due.

So these huge NPAS started due to Basel and continued because of UPA II and their ridiculous loans to many companies just to give appearance of a healthy ecocomy.

Today the large NPAS and the unsustainable business (especially mid corporate and small) due to Basel related banking reforms are throttling the banking industry. This is causing more NPAs and more scams and frauds.

India must withdraw from Basel and institute a much fairer schedule so that decent borrowers get a fair chance to repay their debts rather than have Banks, DRT descend on them – sell their mortgaged assets after 6 years for 1/3 the price and demand balance principal plus interest from them.