Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do.

There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

Sunday, 13 March 2016

Wilful Defaulters { and Wilful Lenders ? }


There are groups of Indian Companies who have borrowed from dozens of banks, thousands of crores of rupees

Total NPA ( Public Sector Banks plus Private Sector Banks ), exceed Rs 7 lakh*crores

{  A loan gets an NPA tag if an installment remains unpaid for 90 days  }

But not all loans to Indian borrowers have turned NPA , nor all borrowers declared " Wilful Defaulters " by RBI


Who is a " Wilful Defaulter " ?

*  A borrower who defaults in loan payment despite having capacity to pay

*  Funds have not been utilized for the purpose for which they were raised and have been diverted

*  While defaulting, the borrower has also disposed off fixed assets , immovable property given as security , without the bank's knowledge


  

Just two days back, SEBI also decided :

*  To bar companies which have been declared wilful defaulter ( along with their promoters and directors ) from accessing stock or bond markets for raising funds

*  To prohibit such defaulters from taking board position in any listed company

*  Wilful defaulters will also be barred from taking over another listed company



No doubt , in the days to come , many more stringent conditions will get added to bring down NPA / Wilful Defaulters

That may lead to lenders ( bankers ) getting " Over Cautious " and simply refuse to take legitimate business risks !

So , is it not  the time for the Banking System to self-regulate through

*   Refining  " Lending Criteria " ,  and

*   Defining " Wilful ( too accommodating ? ) Lenders "



Let there be no doubt that when those hundreds of " Wilful Defaulter " cases get thoroughly probed , many a " Skeletons in the Cupboard " , will come tumbling out !

Sadly , a witch-hunt seems inescapable  !

In the process , let us not forget that " Honest Decisions " must not be made to suffer !

If that happens , in future , no bank officer will want to stick out his neck for fear of it getting chopped off !

Before drawing up a definition of " Wilful  Lenders " , I strongly suggest that RBI debate the following questions :

*    Is there here , some confusion between a " Wrong " decision   and a " Dishonest " decision ?

 Don't millions of honest people continue to take decisions , which in hindsight , appear wrong ?


*    Isn't a " Dishonest " decision one which got taken , solely for the benefit of the decision-taker ( or his family / friends etc )  ?


*    Are we trying to replace honest human " Judgment " by some rigid , hide-bound rules ? by some computer algorithms ?



Economic progress depends upon banks lending money to industries / businesses

It is no different anywhere else in the World


But both, Shri Raghuram Rajan and Shri Arun Jaitley are worried about the pendulum swinging to the other extreme !  And rightly so !

A built-in mechanism for " Pre-Auditing " all loans , could help in balancing the interests of the borrowers and the lenders


At least , introduce some sort of " Self Certification / Declaration " by the concerned officer

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hemenparekh.in / blogs

14  March  2016

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