The Andhra Pradesh Bank Employees’ Federation has sounded alarm bells on Monday, about the possibility of the Indian banking industry going the American way, taking down with it all the depositors who have invested their lifelong earnings in the Public Sector Banks (PSBs).

Noting that a substantial portion of the profits earned by PSBs are being set aside as provisions for bad loans, the office bearers of the Federation cautioned that unless stringent measures are adopted to recover bad loans, the banking sector could collapse.

Bad loans in the public sector banks have grown from Rs.39,000 crore in March 2008 to Rs.2.36 lakh crore by September 2013 and most of these loans were availed by the corporate sector, alleged the General Secretary of the Federation, B.S. Rambabu, while addressing a media conference here on Monday.

Together with the bad loans written off and suits filed, the total amount of fresh bad loans in the last seven years in the PSBs’ accounts stands at Rs.4.95 lakh crore. Going by the annual results being declared by banks, it could escalate in a big way, he warned.

Bad loans from the top 50 corporate defaulters amounted to Rs.40,528 crore, while the combined top 30 bad loan accounts from 24 PSBs as on March 31, 2013, stood at Rs.70,300 crore.

Kingfisher Airlines, Winsome Diamond and Jewellery Co., Electrotherm India, Zoom Developers, and Sterling Biotech are the top five defaulters, while those from Andhra Pradesh among the top 50 include Deccan Chronicle Holdings (Rs.700 crore), MBS Jewellers (Rs.524 crore), Lanco Hoskote Highway (Rs.533 crore), Progressive Constructions (Rs.351 crore), and AP Rajiv Swagruha Corporation (Rs.385 crore).

Waiting to explode in future are the bad loans restructured and shown as good loans, amounting to Rs.3.25 lakh crore.

“To reduce the component of bad loans in the balance sheets, some of the loans are restructured as good loans upon approval from the respective Boards. Majority of these loans will be eventually written off against bad loans provision,” says Mr. Rambabu.

The Federation demands that the wilful default of bank loans be made a criminal offence, and that an investigation be ordered into the sanction of these loans and the corporate-political-official nexus behind it. Laws should be amended to speed up the recovery, and corporate delinquents should not be incentivised. RBI should periodically publish the list of bank loan defaulters, it demanded.