INSUBCONTINENT EXCLUSIVE:
circular on dealing with big defaulters.
In its simplest form, banking is taking money from the average farmer or a salesman saving a
portion of his income for a rainy day and lending to those who need money for buying homes or putting up factories.
An implicit agreement is
that the bank will repay the depositor whenever he needs the money and the borrower will repay according to the agreed schedule of repayment
would be asking for trouble
The day it happens, no bank would survive.
Governments across the world have put up regulators that evolved rules over time to ensure order
Without an order, there is no debate about economic growth or prosperity
The aim was to reach credit to the poor and the needy
were at 10.8% of the total loans in September 2018, RBI data showed
The share of large borrowers in total bad loans is at 83.4%
In plain English, it means nearly all industrial defaults were by rich promoters.
Over the years, crony capitalists who defaulted were
loaned more money by bankers to repay their existing loans, known in banking parlance as evergreening
the bankers and borrowers with an asset quality review, skeletons tumbled out of the cupboard.
Just look at a graph on page 53 of the latest
Report on Trend and Progress of Banking in India
The share of large industries rises to nearly 25%
This captures how the rich borrowers were gaming the system
Probably, the RBI knew it coming, hence the February 12 circular on how to treat defaults within 180 days
Any disease diagnosed earlier has a better chance of getting cured
So is solvency of a business
If the RBI had to come up with this order mandating banks on treating defaults even after the IBC coming into force, it reflected poorly on
the bankers.
Many bankers who were blaming the lack of tough bankruptcy laws were hesitant to try it even after it was promulgated
The government had to come up with an ordinance to empower RBI to direct banks
Why Lenders had the same fear
The actual values of many of the phoney assets they were holding in their books would be exposed
Indian banking was humane
were all intended at changing the banking and borrowing culture
RBI did what bankers were hesitant to do.
Supreme Court may have ruled the February 12 circular ultra vires or beyond its powers
But the IBC process is still alive.
Bankers will be on test now
Promoters would knock their doors seeking restructuring under many of the alphabetical soup of old restructuring schemes such as the
Corporate Debt Restructuring
Whether it is red carpet for crony capitalists or not, bankers should decide.
