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

----------------------------------------------------------------------------------------- / blogs

14  March  2016


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