The standard human response to any adversity is often to turn around and take it out on someone smaller and less powerful. We see this regularly in our quotidian existence, but it is still a bit of a surprise to see it happen at an institutional level, elevated to the status of a policy.

Yet that is what is happening with some of our public sector banks, as they attempt to control the volume of unpaid loans that they still hold on their books. Instead of going after the large defaulters, most of which are mega-corporate bodies that are well able to repay, they have chosen to turn the screws (indirectly) on small borrowers.

Non-performing assets (that is, those loans that are doubtful or unlikely to be repaid) have long been a major bugbear of commercial banks. This is for obvious reasons, of course: lack of repayment or eventual default is the ultimate concern of a bank, because it will simply not survive if this exceeds a particular level. So NPAs - or, more simply put - bad loans - do more than add to the losses of a bank; they also threaten their survival.

But in that sense the Indian banking system is rather healthy at the moment, at least by international standards. The ratio of NPAs to total assets has been falling steadily for more than a decade, from 14.6 per cent at the end of March 2009 to only 2.4 per cent at the end of March 2010. This is a very healthy ratio indeed compared to ratios in excess of 10 per cent in many developed industrial countries, and much higher in several developing countries.

Even so, because of the legacy of the past, most commercial banks in India, and especially the public sector banks, still have very large portfolios of bad loans. Some estimates place the total amount at more than Rs 200,000 crores. Recovering even some of this should enable banks to be much more generous in lending to sectors and potential borrowers that are currently starved of institutional credit.

In fact, it should not even be that difficult, in purely logistical terms. It is an open secret that most of the NPAs are loans made to large corporate houses. The top 200 companies account for anywhere up to 80 per cent of the value of the total bad loans. So there are relatively few debtors who hold a fairly large chunk of the bad debt. This ought to make it quite simple to go after those who have not repaid their previous loans, especially if they are currently making profits that have made their top shareholders count among the richest men in the world.

But this has not been on the cards for a while, if ever. The huge accumulation of bad loans made to large corporates continues unabated, while the same corporates merrily continue to access credit usually on highly favourable terms both in India and abroad. Instead of focussing attention on redeeming some of that debt, or even of naming and shaming the defaulter, the commercial banks are seeking ways to restructure their portfolio in ways that put all the burden on small borrowers.

Thus, the phenomenon of banks hiring ''collection agents'' to recover small loans and credit card payments had already started. These agents are usually little more than goons who use threats and sometime even physical force to ensure repayment or to take over collateral. But of course such actions are cumbersome, and they also tend to give the banks concerned a bad name. So the more recent tendency is to outsource such activity altogether, by selling off such assets to other ''finance'' companies that will have less compunction in ensuring repayment by all possible means.

Thus, there have been reports that several public sector banks have been selling off their small NPA accounts (for those loans of Rs 10 lakhs or less) at a large discount, to private players. Note that there is no question of doing so with the loan accounts of those who have borrowed more, presumably because they would have greater economic (and political?) power to counter the repayment pressures.

The companies that have bought these greatly discounted assets will therefore move quickly to ensure that their investment was worth it, by extracting as much of the loans as they possibly can. And they will use not just correct formal procedures, but also goons and toughs to scare the borrowers into repaying.

This means that the small scale producers, the middle class families and similar groups that have borrowed relatively small amounts will all be under great pressure to repay promptly. They could have borrowed these amounts to finance their production, to eke out a livelihood, to purchase some treasured asset like a consumer durable or a means of transport, or been to finance education or health expenses. It does not matter what the cause is, if for any reason they experience difficulties in timely and continuing repayment. They can expect humiliating treatment from aggressive debt collectors, attachment of property and intimidation by various means, even up to threat of physical violence.

Since these small loans account for relatively little of the total NPAs, such sale of NPAs will do very little to improve the overall asset position of the banks. And of course the big fish that do account for most of the NPAs will simply swim away unmolested, and even continue to get more loans from the same banks!

Because such a move gets couched in technical language in banking reports and is scarcely mentioned in mainstream media, most people are not even aware of the implications of such a seemingly innocuous move of the public sector banks. Only when the instance of harassment and eviction, and the midnight knocks on the door by mafia-style collectors, start to proliferate, will the full implications sink in.

Would it be too much to ask for a level playing field in the matter of these NPAs? That for every small farmer or middle class household that is harassed, one big company is also exposed and forced to repay?