Why the Genuine Stressed Account should be Punished by Higher ROI & Penalties?

Friends

My views may not be acceptable to banking people but I fail to understand why a stressed account (not in position to stand properly & needing immediate support) should be punished in this manner. We have noticed that the moment a borrower defaults, he is classified to Special Mention Account (SMA)-1, then SMA-2 and finally NPA. This is the stage where such units who have paid huge amount of interest and other income (LC/BG charges, Processing fees and other banking charges) during their long good days to their lenders. Is it not unfair on the part of lenders to instantly punish them with penal interests, higher rate of interest, higher margins on working capital funds, higher charges towards various inspections, audits, due-diligence  and so on?  Is it not criminal to push the stressed accounts further into stress from where they can’t even think of coming out?

I don’t agree that defaulting accounts should be treated with iron hands with the sole objective of recovery and killing them. This way even recovery will be adversely affected. In many cases we have noticed that the stake holders are not the borrower only. There are large number of other stake holders like employees, laborers, suppliers, small agencies providing various services etc. All these stake holders are the worst hit by the improper actions of the lenders. These poor service providers should be given due priority over the secured lenders. Such attitude or policy for the established long standing clients is not justified as these banks are mainly surviving on the small depositors’ money. Secured lenders should not behave in such manner that interest of all other stake holders get into flames.

In good times if a borrower had been cash cow, it should not be slaughtered so mercilessly immediately after finding difficulty in giving milk.  

There should be proper mechanism  of dealing with the stressed accounts. Theoretically, lot of steps have been taken by the authorities but mostly are either impractical or diverted for personal benefits. The concept of Asset Reconstruction Companies   has also miserably failed due to the commercialization  and huge entry barrier.

There should be detailed study as to how the lenders behaved post stress, how many units were revived and how the handholding happened. At least for the well established borrowers, the rehabilitation and concessions should be automatically extended. In recent past millions of people have been thrown out of job due to mishandling of stressed/defaulting accounts by the lenders in our country. Similarly millions of other people who were involved indirectly by providing goods and services to these units have suffered badly.  

CP

Handling of Defaulting / Stressed Accounts by Lenders: Serious Faults

Friends

Stressed accounts who have defaulted are given almost same treatment irrespective of the issues involved. It is just like giving electric shock of same volts and frequency to every patient visiting mental hospital without judging the level of disease , intensity and age. Here is how they are treated and the effect thereof:

1.       Stage  I -Lenders: Flooding  of notices related to irregularity, warnings, threatening.  The moment panic button of stress is pressed lenders run for recovering their money forgetting that they are major financial partners. To prove their capability, lenders flood the borrower lot many letters, notices, warnings etc. Instead they should try to find the reason behind this.

Effect of the Action:  The borrower first tries to convince the lenders humbly. Then becomes defensive and in final stage after convincing self that now he may be thrown out of the business, and loose every penny , starts avoiding the lenders. Lenders start calling them so often that the borrower gets scared and resorts to avoid.

2.       Stage II-Lenders : Further pressurize the borrower by giving warnings, threatening and levying penalties, higher rate of interests and non cooperation with the borrower. Lenders  Never discuss why it happened, only concern is pay money even if you lost every thing. They never show any interest in knowing the facts.

Effect of Action:  The borrower starts hiding the facts as he feels , lenders are not interested  in helping to revive but only in their money. He starts avoiding the lenders, and simultaneously try to safeguard his own interest. Thus the unit becomes orphan and gradually moved towards sinking.

3.       Legal Actions by Lenders:  Still lenders feel that their actions of recovery were right. They further burden him with legal notices. Here, the lenders feels that if they threaten the borrower with stringent actions, money will come. They forget, this theory is suicidal and will result in huge losses but the lenders in the race of proving themselves honest and shrewd (which is very rare) they virtually kill all the hopes of revival.

Effect of Action: Gradually the issue between lender and borrower turns into lawyer and lawyer. Result can be immediately expected as two lawyers are more interested in winning the fight not in win-win situation.

4.       Settlement, write-off and  provisioning by Lenders: Lenders by this time believe that the borrower is cheater, mafia, dishonest, criminal, non professional and so on. He has siphoned off money and now enjoying life . Also that their seniors or predecessor  were not capable enough and they did mistake. So the lending institution has to suffer the loss. They have tried their best and nothing can be done.

Effect of Action: Borrower and Lenders settle the account on the basis of the security available as the business by now is dead. In most cases Lenders loose money.

5.       Conclusion: Finally the fight between layers does not lead anywhere and behind the curtain, negotiation starts to settle the dues and disputes. No body wins and poor stake holders loose heavily.

 In my view this set trend of handling the account is absolutely ridiculous as it does not help any one. Lenders and borrowers behave differently depending  on the loan amount, security pledged and  mistakes done in handling the accounts. An urgent attention is required to look into the strategy and methods of handling the defaulting /stressed accounts, particularly at the initial stage. The action should be to help in bringing back the stressed accounts to normal and revive instead of just killing to recover the money.

On one side the borrower is in problem . The strategy of pushing the borrower to corner with sole objective of recovery is not only dangerous but pathetic too. How can an unit where the major financing partner is the bank suddenly become untouchable. Sometime we feel pity of such policy. Pushing, punishing, criticising , reprimanding the borrower is in no case going to serve the purpose. This strategy is no where can be termed as intelligent. Do we punish our body when it is getting in stress? Do we punish our kids when they do not perform as per our wish or they fail in something? Even in private sector whenever some borrower gets into stress the lender tries to save him so the money can be recovered. 
Current situation of NPA in banks in our country is mainly due to this reason  where no Banker could think other way of handling the stressed accounts. Mistrust between the lender and borrower causes the maximum loss and that too to the lender. By punishing the borrower or trying to Finnish him or throwing in dust may give some satisfaction of revenge but not money.

CP 

NPA - How to turn the Failure into Success

Friends

It is not a welcome situation to turn into NPA where you default in all the commitments and face the legal issues. At stake is the complete career, wealth and reputation of the borrowers. In a situation of stress or default, there would be very few options left to move forward and that too at very dear cost. 

It is not easy to survive once you default in making payments. I fact, this is the beginning of the dark future ahead where your capabilities, achievements are put to question. No one believes that once you were the achiever, fighter, survivor and visionary. A single situation washes out the image built up in decades. In most of the cases the borrower surrenders and starts withdrawing himself from the stage. Instead of focusing on business he moves towards legal and finance angles. It is necessary too but the thought process should not be fully concentrated on these. One must not forget that it is the business which is real domain of the borrower which need to sharpen again. It is only the business which can bring back the lost shine. 

The speed with which the situation deteriorates and actions are initiated against the borrowers, it becomes imperative to face and fight with full force. Equally important is the zeal to bounce back. 

I wish to share my views how this situation can be turned into opportunity. A situation of stress can be really turned into a lifetime opportunity if properly handled. The accounts become NPA and the credibility of the borrower is in negative zone. What we forget is the fact that the borrower knows his Business very well and has climbed to the top due to his expertise, hard work and vision. Only certain decisions went wrong and he fell down. Since he had the guts to climb on top , means he is expert, hard working and visionary. This can not be debated unless the success was with manipulation so or other objectionable methods. May be certain decisions went wrong or mismanaged the business or overconfidence or may be certain factors beyond his control resulted into this situation. 

But, in new phase, if opportunity is given again, he is not going to repeat the same mistakes. Also, he will work with more concentration and hard work as he has seen the life nearing to death. Without any emotions to the failed business if he decides to restart from scratch and rebuild., believe me, it would not take even 25% of the time invested in building up earlier. This is because the entrepreneur has learned a lot in stress. He would be more successful. Particularly first generation entrepreneurs have better chance to rebuild.  
C P

Challenges in Running a NPA unit

Friends

It is a very tough job to revive an unit once it falls into the trap of Stress. Financially, such units become NPA and the owners are classified as defaulters in the CIBIL record. Ultimately it has very few avenues open for raising  finance . Thus few hopes of revival amid severe challenges from all the sides. These few hopes need lot of hard work, honesty, patience, focused approach and  tough decisions if the unit has to see itself revived.  

An Stressed/NPA unit has typical characteristic of exhausted  options for raising finance, huge losses,  small and semi-expert management team, low credibility with the suppliers, ongoing legal issues with the lenders, high cost of business operations due to liquidity crunch coupled with long overdue statutory liabilities and labour dues. Overall the life of a stressed unit becomes so tough that for every step there are end number of challenges . 

In this situation what are the ways to not only continue the business operations but also come out of the stress. As per my experience very few units ( not more than 20%) bounce back, rest go into oblivion. Reviving a unit under the tight noose of the lenders, government scrutiny and paucity of funds needs lot of courage and sound strategy. Some of the following suggestions may help in revival process:

1.      The unit can be switched over to job work : this will help in scaling up the operations and also generate revenues without much investment;

2.      Credit period needs to be reduced to the maximum even if it causing some margin hit;

3.      Non core asset, if any, should be immediately disposed off. However this takes some time as proper pricing may not be offered. While disposing of such assets ‘ liquidity’should be preferred than the ‘value of sale’ as the need of the hour is liquidity. It is to some extent emotional issue too but when there is fire at home, one can not be selective in saving the life. However, this step is possible only with the permission of the Lenders if assets are mortgaged.

4.      Change in management team: cost saving is the need of the hour and shall be strictly adhered , this need small team with lowest possible cost. Such units can not afford very high cost team but the talent Can not be compromised . Outsourcing the talent can be good  option to fill the gap .  

5.      Any additional funding into the form of debt should be avoided thought it may not be available too. The cost saving is the earning too. Equity is the most suitable way of raising funds. Management should be always open to the strategic investment even if it transpires into the change in management for the benefit of the unit . There is no better option than reviving the unit. 

6.      Above all, self confidence of the owner is the key to revive the unit as he is the one who created it and has the guts to revive too . Poor market support , tough legal battles and tight financial position are only temporary obstacles need to be addressed with hard and quick  decisions, patience and positive attitude.

It may take 2-3 years to revive  an unit but once the revival happens, promoter can regain the lost image and money.

CP 

Revival of Stressed Account: Employee Participation

Friends

In last some of my posts I had shared my views on one of the most sensitive issue of banking sector currently i.e. Stressed/ NPA accounts. There are lot of discussions, analysis and suggestions in this regard. Infact, this issue has in last three years surpassed all the other issues in banking industry affecting the new businesses severely. As mentioned by me only one side is not to blame for this situation. Lenders are equally responsible for this which they should accept, correct and move forward. Just reprimanding the borrowers and branding them fraudsters will not serve any purpose. Rather this will cause huge financial losses to the lending fraternity alongwith the unemployment of large number of lower class people . The situation deteriorates when there is panic ness to use all the tools available in the rule book. The race to prove intelligency, honesty and dedication by employees from the lending side is proving quite costly to the whole system . Although it is a tough task to revive a unit which is failed and that too if that has happened due to manipulative tactics of the borrowers, but such cases can be segregated and handled in different way . Whereas genuine cases, which are much more in number, shall be handled with care which will not only help the lenders in realising their money in long run but also save  the life of many poor families who are dependent on such units. As per data available more than 4 lac units have become sick causing unemployment to more than 100 lac employees . 

To revive the units lenders should take positive view as they had appraised the units in past. There may be some miscalculations or situations beyond the control of the borrowers which led to sickness. Also, the revival can be with stringent conditions like severe monitoring, management interference , takeover of management if required and pledging full equity. In addition to this the employee participation in management and equity sharing with the employees can prove to be a good idea. The assessment shall be genuine and practical with long term perspective . In my view the revival should be given try to the maximum possible before resorting to the killing of the unit. Let the poor labour / employees who have become job less earn their bread from families and also participate in the ownership of such units. With better participation, no one can stop the sick units from revival.  Also, the period of revival should be sufficient enough based on proper appraisal of the project and situation so that it is not repeated. We have noticed in many cases, particularly infra sector, where the actual cash flow can service the debt in 15 years but to make the proposal attractive, the projections have been manipulated and ultimately debt could not be serviced in time.

CP Jain

NPA / Stress : Disease but Not the End

Friends

Bankers/ Lenders behave differently and rather rudely once the account becomes NPA  it seems they simply want to use all the tools laid down in the rule book. They would Fire, insult and pressurize the borrower to repay loan. They are not wrong but the use of all these tactics is not appreciable. Probably lenders believe that business is without risk and full of certainty. In their view, the business can not go wrong and if goes, it is because of malafide intentions of the borrower. Hence in the process of using all the tools available with them, they forget that the business was properly analysed by themselves only and any drastic action will hurt the poor people most.  They use every tactic of recovery at any cost.

Lenders who  till recently were boasting their lending capabilities by referring the successful borrower, suddenly start distancing themselves from the borrower as if he is swine flu patient. Top to bottom banking officials , politicians , investigative agencies and so on try to reprimand him . They behave as if they don't know him, nobody wants to tell the world that the same borrower was their most sought after golden goose well kept secret . Till recently they were boosting of knowing this high profile borrower and now ???!!! What happened , what went wrong, don't you know business is full of uncertainty . Bankers only appraised the proposal, recommended at various level and sanctioned . If everything is transparent , no need to hide the fact. Help him, take care of him and try to make him stand again. No doubt if the  intentions of the borrower are wrong, fund is diverted, he deserves to be punished . Lenders have no right to sit on securities and take the life of hundreds of people for granted . There should make every effort to revive the unit so the life of thousands of poor people  can be saved. There should not be one sided blame on the borrower only , if we share the earning in good time why not take responsibility in tough time . CIBIL reports should be used for better judgment , it should not be an obstacle. I firmly believe if the lenders behave in matured way and help the NPA borrower, they can recover substantial money which is infact public money.  

CP

Yeh kaha aa Gaye ? This is the question one of my client asked to himself. What went wrong with him suddenly that the achievements of 30 years were questioned. He stared his career in a very humble way. A poor boy who was basically earning  his daily bread by stitching clothes.  Yes you are right , he was tailor with even no ownership of a sewing  machine. Day & Night he was on that rented sewing  machine . Gradually he owned one machine. He was very happy but had a dream of becoming successful businessman as he could not succeed in education . He wanted to remove his poor family tag from all the family members. So to achieve this dream  he started hiring people and doing job work for others. One machine multiplied to 100 and then 500. Now he had full fledged industrial unit with more than 700 ppl under his empire. He did not stop there , and moved, moved and moved. Never he thought of family and the result was that soon he built up the capacity of manufacturing 5000 shirts per day . The dream was much bigger and it led to 20000 shirts per day. Now money was not the issue, success became the dream. He was now surrounded by the people who gained his confidence after he became successful. In life we come across two kind  of people I.e. those who help during journey of success but we forget and those who join after success but we never forget. So these second kind of people stared giving him advise in technical language with jargons. He was not looking back and had overconfidence that all his business decisions of last 40 years were correct and can never go wrong in future too. 

New breed of people started questioning is garment business . Why not chemical, pharma or petrochemicals . The 24*7 money churning machine led to the belief that new sectors are full of money and this old one is too small. This led to jumping into petrochemical and pharma sector. Now this decision was going  to cost him dearly. He lost every thing, even the garment division started  bleeding and soon both the divisions became sick. 

Every body now turned tables and questioned his capability. He was confused and thinking how to handle this situation. Profit gone and money borrowed from bank and others could not be served. He was soon branded failure . The same bankers who used to take his appointment were now asking him questions quite insulting . He was sitting in a Corner answering every body . More than that may be asking himself what he has done ?. Where he has landed now ? This is the life of a business man convincing every body what went wrong but no one was believing . I cud see the pain in his eyes. I could read unanswered questions in his eyes . May be God would reply some  day or may be never. Now the new set of people were guarding him. 

ऐसे  ही बैठे थे कुछ सपनों के साथ, ठंडी हवा नाच रही थी, आते जाते लिपट के अपना अहसास करा रही थी. शायद जानना चाह रही थी कि सपने क्या बुदबुदा रहे हैं. लग रहा था सपने सच हो रहे हैं. 

भूल गये थे कि वक़्त नाराज़ चल रहा है, आजकल अपने आप को ठगा सा महसूस कर रहा है. वो जानता है उसके सामने मेरा वजूद कुछ नहीं फिर भी ख़फ़ा है. 

तभी एक झटका लगा दिल को , सपने टूट गये थे. एक क्षण में वक़्त ने मेरी औक़ात बता दी. टूटे सपने आँखों से आँसू बनके निकल रहे थे. अब तो हवा भी खिसक ली थी. 

Effect of Federal Rate, RBI Actions and Chinese Impact on NPA in India

Friends

Recent developments across the world are showing signs of further stress in the economy. China has already devalued its’ currency by almost 5% which has burnt the cream of share market in India by almost 10%. This has also made the USD against INR costlier by almost 5%. Rupee has already crossed Rs. 66.00 barrier recently. Meanwhile there was a tension in Indian economy of US federal rate hike. Had it been, it would have further affected the FDI in the country.

Since long things are not very favourable for the country. This could have been handled by positive support to the domestic industry and better interest rates but it seems the analysis at the highest level is not in sync with the ground realities.  We are deeply affected by the happenings in China and US as a part of global economy but the strategies are not in place to face these situations which are quite frequent now.  China may further devalue the currency by 5%-10% which would throw great challenge to Indian economy. Further the interest rates in our country are too high to sustain. Indian industry without proper support will not be in the position to combat the global challenges and this will further deteriorate the NPA situation of our country. In current year 2014-15, we could not come across to any exciting steps by the government which can help the NPA accounts to improve. Major capital intensive sectors like Infrastructure (Road, power, port, bridges etc.), Steel, Cement, real estate,  automobiles, mining are passing through a serious surviving challenges and something concrete is not done, there will be sea of stressed accounts in the banking sector.

Last three years have seen huge jump in NPA accounts bleeding almost all the banks. This trend is not yet stopped rather the events unfolding in Indian corporate sector and global challenges will further strengthen this jump of NPA accounts.

CP  Jain

20^th Sep.2015

Reservation System

Friends

Reservation issue for Patels is hotting up in Gujarat. Recently same issue was raised in Rajasthan by Gurjars. We can expect similar agitations in other states too. Typically , this time farmer community is waking up for reservation. This who are already in reserve category are resisting entry of new castes and those out side are trying their level best to enter into the reserved ring. 

I am not against reservation but the format is age old and needs to be revised. The basis should be economic condition not the caste. Why well established Dalits/SC/ST should not opt for non reservation. This will help others. Those in high post of Government Job should do.Every gazetted officer should be asked to opt out of reservation quota.  It is enough now. Think beyond vote politics.Let us Start with All IAS and IPS and other A class Government Officers. 

Also, the reservation should not be given for higher education and promotion. Another suggestion is that reservation benefit should be given once in lifetime to a person. Those economically poor should be given reservation benefit to uplift them. 

C P

Mounting NPAs: What Went Wrong (WWW)? Part-4: Political Compulsions & Corruption

Friends

In addition to the factors analysed in previous posts responsible for disaster in the Banks in the form of NPAs and Stressed accounts i.e. a)Fast development of Banking industry; and b) Sudden Growth in Indian Economy, I would like share my views on one more major cause that led to huge losses to the Banks. This important factor was “Political Compulsions and Corruption”. Congress Government under the leadership of Mr. P.V. Narsimha Rao introduced liberalization to the economy. It was major turning point for the country and helped a lot to this party in ruling the country. They were encashing this very meticulously by branding other parties either communist or dumb in economics.

Under new environment of liberalization, the economy was taking new shape and offering lot of opportunities to the domestic and overseas players. The volume of money was too much and luring the people from all walks. Political parties had started looking at economics as intelligent and smart players. They understood their importance in policy framing, decision making, appointments and fund raising. They started interfering in banking systems, guiding and helping the business community in sourcing finance. These activities were root cause for rampant corruption in the system.

Then in 1999, NDA Govt. came under the leadership of Mr. Vajpayee who inherited the fast growing economy and huge opportunities to develop. Infrastructure was the focus and huge investment was required in Infra, Power and Telecom, which would not have been possible without government support. These developments somewhere not only forced the banks to lend aggressively but also liberally. It was the beginning of corruption and defaults too. The surprise exit of NDA made the new UPA government overconfident. The power to new group was for next 10 years. The failure of opposition parties to control the ruling parties (may be some nexus, I don’t know) was quite visible. It was the public at last who threw away this group from power and again gave opportunity to NDA under Mr. Modi.

Thus developments from 1999-2013, Interference of political parties in lending money, appointments and policy making resulted into sharp increase of lending. This was not done judiciously and hence huge chunk of lending became non performing. Bureaucrats and politicians for their personal benefits put the banks in big problem. Corruption was rampant, we can’t deny its existence today even, which to a great extent is the major factor responsible for NPAs. Compulsion of moving fast and feed the requirement of funds to the economy also lured for lending very liberally.

Government should give serious thought before giving money to the Banks and ensure that necessary precautions are taken as this is poor public’s money which has been given in past too. In fact, large part of such infusion drains out in due course and again the demand for more infusion is raised by the Banks. It gives me the memories of Ram Leela where in Kumbhkaran demands continuously huge quantity of food after waking up. Better the Government wakes up at least now and control this drainage of funds.

CP

Mounting NPAs: What Went Wrong (WWW)? Part-5: Overambitions/Greed of Entrepreneurs

Friends

To conclude my views over mounting NPAs , last but not the least key factor lies with the borrowers. The golden opportunity for Indian entrepreneurs in liberalised economy post 1991 was unprecedented. Suddenly many new sectors particularly with high capital intensive like telecom, finance, infrastructure, global trading, logistics and engineering opened up. The domestic players were further pushed by overseas players and thus the economy started growing day and night. Those who could perform were more greedy to grow faster  and those who were left behind did anything required to manipulate. Lot of borrowers defaulted due to over ambitious planning and miscalculation. Greed of the borrowers sabotaged the  banking system. They were aware of the prevailing legal system which acts as shield for the borrowers. Easy availability of funds, lethargic legal process, manipulative practices of the borrowers, corruption, growing economy and uncontrolled banking growth were the key factors for ever mounting NPAs. 

Unfortunately, we have not yet learned the lesson from this and continue to ignore these facts. We believe in short term vision where infusion of funds in phases to take care of survival of banks is made by the respective governments. 

A detailed Corrective Action Plan (CAP) is required at the highest level to avoid any future growth in NPA which is possible only with honest and intelligent actions. In our country top 20 borrowers have exposure to the extent of 20% of total lending portfolio which in itself very sensitive issue and needs to be handled very judiciously.

I will share my views on various suggestions to control NPAs in next posts.

CP

Mounting NPAs: What Went Wrong (WWW)? Part-3: Sudden Growth in Economy

Friends, In continuation of my earlier post for mounting NPA, I wish to share my views in regard to various factors. Here is the second major factor i.e. Sudden Jump in Economy:

Post liberalization, the economy started vibrating tremendously and this led to freeing various sectors of the Economy particularly Finance , Infrastructure and Industry. Without sufficient Funds, it was not possible to move forward. Funds started flowing from overseas markets, Share Markets witnessed sharp increase in volumes and every penny brought in as Equity was used to raise debt more than 3 times. This made the debt market blast like anything. Now this led to the sharp increase in lending business .  Infrastructure development,  Industrialisation,  Power, Mining, healthcare, hospitality all segments were like hungry demons out to suck the money . The cascading effect was on equity market which boomed like anything and this resulted into more and more need of debt money to the system. Infact it was like a vibrating ring effecting each other to vibrate further.

With new liberalized environment, political parties started demanding more and more growth. They started  taking more and more interest in GDP growth, IIP numbers and Sensex. This probably also ignited the level of corruption in all segments.

We witnessed a decade with highest investment in infrastructure like Port, Power, Road, Buildings, Bridges between 1998 to 2008. This also made our country manufacturing hub and put the country ahead of many countries in Many industrial segments. Obviously, it was not without any flaws, it took away lot of capital from the system. 

Probably, the respective governments were quite confident about the capability of Indian banks to handle this sudden spurt in demand of money. Though governments and institutions were delivering their best, but the good time was not alone, it brought higher level of corruption, high expectations, chaos in the system and mis-management . In the process, politicians took over the reigns of finance and started over ruling the bankers. The situation in banking system was already on fire due to severe competition, this tendency of forcing the bankers to lend more and more further worsened the situation. Even appointments were not free from any allegations. The pressure of performance with in limited time frame caused the deterioration in quality.

To sum up, Both factors i.e. Growth in banking sector and Economic growth resulted into very high defaults at later date. 

Other factors responsible for current level of NPA needs detailed analysis before pumping money into banking system continuously. This is public’s hard earned money and should be used judiciously. Lending institutions should not be allowed to remain corruption breeding stations forever. 

CP

Mounting NPAs: What Went Wrong (WWW)? Part-2: Development in Banking System

Friends

Carrying forward the discussion on four major issues responsible for mounting NPAs, let us dig these issues further. One of the major issue was “Development in Banking System only ” . As mentioned in my previous article, post liberalization, focus on building up capability was meant only adding new employees, new branches and adding new borrowers.  Bankers/lenders never bothered to first build up capacity and then add the business. In fact, it was other way round where aggressive approach to increase business followed by building up capability. To be true, still very least investment is made by the bankers on education and training despite so much hit on the balance sheet. The visible change is due to computerization or digitalization and not due to knowledge development. The appraisal system of loans, funding products, Client due diligence and Project viability studies are still going on the same old pattern.  Prescribed norms of classifying NPA are too rigid and impractical. Same set of standards being applied on all kinds of loan despite huge variations in their characters. Lenders should consider the economic scenario, monsoon situation, too to apply the NPA norms. The norms should be flexible enough to help the genuine borrowers.  Senior employees of Banks presume 100% knowledge of the finance sector which blocks the knowledge inflow. The Ego of officers is another serious factor which needs to be handled properly.

As mentioned by me earlier, the performance parameters should be more quality focused than quantity. Short term view of business growth has caused lot of damages to the Indian banking system. As is well known the pressure of achieving targets is too much on the team and this leads to compromise in the quality of account. Lending banks have to build up capacity of global standard to sustain in the current market. Unreasonable target setting by the authorities should be avoided if banks are really serious to control the NBPAs. It has been widely known fact that every one wanted to reach the height and to achieve this target are key issues. One team does business without proper appraisal and poor monitoring to get the promotions and other teams gets promotion by achieving recovery targets. Most of the business has been achieved by misusing the office or conflict of interest. Banks themselves became consultants and  advisors too and started achieving the set targets in all those segments. The expansions are good but equally dangerous if not handled properly.

In my view there are lot many gaps and weaknesses are still exists in the banking system which will continue to generate more and more NPAs. These issues should be addressed properly before infusion of funds by the Government.  Without building capability, the growth in the banking system will be prone to all kind of drawbacks. However, I agree that only this factor of development in Banking system is not the sole reason for mounting NPAs as other reasons are equally responsible for disastrous situation of NPAs in India.

I shall ponder on the other issues in my next articles.

CP

Mounting NPAs: What Went Wrong (WWW)?

Friends

In last 15 years, Indian Banks have tasted huge jump in non- performing assets. This has grown with the growth in advances which is quite convincing. Currently, NPA are more than Rs. 5.00 Lac Crs. or about 75 billion USD.  Actual figures of NPA and stressed accounts are estimated to cross Rs. 10 Lac Crores, almost 11% of total loan portfolio. 

What went wrong? Why it was not monitored properly? Is it matter of skill or something else? The answer to all these questions can be find out within the problem itself. A critical and unbiased analysis can not only help in understanding the facts but also help in controlling this for future.

A)     Development in Banking system: In the beginning of this millennium, the competition was growing and private banks were just attending the age of adolescence. These banks were flushed with funds, aggressive team and to some extent knowledge. These banks were infact born out of frustration of the public sector banks who were dead slow and politically infected. We can’t deny this even today.  Also these banks were run by the cream of  bankers who were very sharp, intelligent and aggressive but were frustrated in the PSU Banks. These banks with thin organization structure and fast decision making process soon overtake many PSU banks who were just surviving on government support and had become political shop.  Thus the frustration of Bankers who could not perform in the dull atmosphere of PSU Banks and Exciting plans of the new banks joined hands together and exploded the market. Every Bank invented new products to lure the customers to borrow. Very soon private banks accumulated huge business from the market and this hit to the bottom of the PSU Banks. Now the turn was of just awakened PSU banks who not only lost the business but precious manpower too, to grab the market. The PSU Banks joined the rat race of increasing business without considering the GDP growth of the country. Every Bank was out to give Year-On- Year Growth of more than 20%, the pressure mounted at every level and thus the whole system of conservative appraisal, due diligence, Non-deviation from the set rules and strict adherence to end use principles got damaged.

Banks started rewarding Officers i) who could garner more and more business irrespective to the quality; ii)  Who could register better recovery from the stressed accounts ignoring the fact that certain units could have been revived; iii) who could earn more and more fees for the organization even if it was through business executed under conflict of interest; and iv)  who could expand the business left, right and centre without any focused approach.

     B)  Sudden Growth in the Economy: Beginning of the millennium also witnessed sudden jump in the economy. Existing set up was not well equipped to handle the sharp growth of the globalised Indian economy. All they could understand was to lend money in the proportion of 3:1 where Equity was only one third of the total loan and that too in many cases on paper only. No body was ready to listen and understand the hard fact that lending can not be influenced by emotional or political pressures. Systems and Procedures were not in place and by the time one could understand, there was a mountain of NPA before the banks.

    C)   Political Compulsions and Corruption: When NDA regained power in 1999, it was very hard earned by these non congress parties and hence they were aggressive to fuel the growth. Most of the parliament speeches were wrapped into GDP growth and hence the large funding was forced upon the bankers. This process further speed up post 2004 under UPA government. Rampant corruption in appointments and lending resulted into poor decisions. There was no hope for prudent decisions. In this situation, the mistakes of wrong funding was quite obvious and hence huge increase in NPA.

     D) Over Ambitious Entrepreneurs: This is most crucial analysis, either the entrepreneurs were over ambitious and hence asked money or may be vice versa, but the result was same. Easy availability of funds or over confidence of lenders in entrepreneurs too fueled the fire. The cascading effect was in poor appraisal, fast decision making, poor monitoring and competition to surpass the other lenders.

Indian bankers were never equipped to handle the sharp growth as nothing was system driven. It was more people driven minus poor systems and procedures. Human Resource too responsible as there was not sufficient training to the lending employees. Personal habits like Ego, ignorance, over confidence too ignited the process of high NPA.

Detailed analysis of all the above major factors will be discussed soon.

CP

Happy Friendship Day

Friends

Today is Friendship Day and it is being celebrated worldwide. 'Friend' is one of the most touching word which sparks in the mind with some images. More you dig into it, more images will come in mind. This follows with the old and new memories, incidents, events and so on...If we look into the collection of friends during our life we will notice every phase bring in different kind of friend, different character, different motives and different longivity. I wish to explain it further:

a) Phase-I (Between 1-4 years): Very fad memory will be of such friends. Only motive is to play with them, fight for trivial reasons and forget. Such friends are rarely come in mind unless they are continue in next phase. Such friendship is more of a protected environment.

b) Phase-II (Between 5-15 Years): This is the most exciting phase of mental development, education, developing dreams and so on. We make lot of friends during this phase who share our dream, share the challenges of education and of course share the joy of growing age. No one knows what we will do in life, where we will locate, what kind of family we are going to build up. Friendship in this phase is so pious that irrespective to the caste, creed, social status, we blend with the friends very strongly. Though bit immatured, the friends of this phase live in memories forever. So informal talks, useless discussions, sharing of every thing, fighting, criticizing, challenging, playing and what not. These friends are so much attached to us that any suggestion or advise or views by them carry more weight than the parents. Infact, we believe they understand us better than the parents.

c) Phase-III (Between 16-25 Years): Friends of this phase mostly include the second phase friends too. The friendship made in colleges, professional careers and struggle period is more matured, understandable, intelligent but slightly mixed with the motives. It may not be as innocent as the friends of phase-II. However, this friendship decides the direction of career, family and personality. These friends are with us forever during life, may not we meet regularly but always stay in our heart. 

d) Phase-IV (Between 26-50 Years) : By the time this phase starts, we start moving towards career ladder, family creation and most of the time dislocate the habitat. We make many friends in this phase but mostly  with motives. The criteria changes, innocent converts to intelligent, priority changes and thus the friendship made in this phase may last long but only till the motives are served. We become more selfish, conscious of society, purposeful. Even the friends have to be screened out by the family before cementing . In this phase decision of making friend is not taken unilaterally , it has to be vetted by the family.  Parameters like caste, creed, social status, benefit takes over the decision of building up friendship. However, friends of this phase are one who are always with us, well understanding, matured. Very few may be innocent too. 

e) Phase-V (Between 51-65 years) : By this age the kids start growing, their career takes shape and mostly settled in the life. This age gives throws new challenges in life where we are left with life partners only in most cases. The loneliness, frustration, depression, health issues start cropping up. Though this phase give very less friends, the need of new friends is also not much till we are surrounded by the friends of earlier phases or relatives. We pull the life by comparing with others, copying them and settling the kids. This phase also has more or less same character of friendship as of previous phase. 

f) Phase VI ( 66 Years and above) : We become rigid in nature, left out by the kids, become more spiritual, religious and social. Rarely new friendship is built up at this stage. May be some colleagues who are sailing in the same boat. 

A person maintaining friends of every phase will be the happiest friend. As said 'Every Friend is Necessary'. Friends of phase -II and III are the most long term. They may be Kamine, but very lovely and innocent. We never think who came last for these friends , any body can some as much as time without even appointment, can abuse you, can insult you but all this without motive, purpose or bad intentions.

I wish a very happy Friendship day to all my friends who have been associated with me during the journey of my life. May be I could not reciprocate same love and affection to them but still......

CP

PSBs- Oxygen of Rs. 70 K Crores : Serious Flaw in Banking Structure

  Friends

  Indian Economy in last 68 years has seen substantial growth post independence. The Economy got boost in 1991 by way of liberalization. This growth was further fuelled by various political and economical steps taken by Government India under different political parties.

Public Sector Banks have played very crucial role in this growth . The trust and patience displayed by banking authorities in Indian Entrepreneurs has been remarkable. Government has continuously supported PSBs by way of infusion of capital from time to time.  Without this support, Indian banking would not have been in such a healthy position.

Recently GOI announced infusion of Rs. 70 K Crs. in next 4 years. In past GOI has infused huge money into Banking system to keep them live and flourishing. There is nothing wrong to support the Banks owned by GOI but it should also look into certain issues which may be real causes of concern and may be strategic fault lines. In my view GOI should seriously look into these issues:

  1.       Subsidiary Companies: Most of the PSBs are having one or more wholly owned subsidiaries in the field of advisory services, ARCs, housing finance, Insurance, Asset Management, Factoring, Broking etc. Some of the Banks are having key share in rating agencies too. Most of the Rating agencies and Asset Reconstruction Companies are owned by the Banks only. These subsidiaries are surviving on mostly fees from the assignments created by parent company. In my view this is serious issue of conflict of interest.

 Let me explain the issue: ‘A’ Bank who is a major Bank of the country has advisory firm engaged in  capital  market, Restructuring, Debt Syndication, CDR, TEV Study etc.  This advisory firm will take the assignment for loan syndication. Generally assignments are given out of pressure. Being a subsidiary company parent bank will be soft in lending to the client sourced by it.  In my view this activity falls into conflict of interest and probability of wrong decision in lending becomes very high. Similarly, when an account gets stressed and need restructuring, parent bank will give this assignment to this advisory firm. Again this firm will charge heftily to liaise with parent bank on behalf of the client.  Again this is conflict of interest and right decision may severely get affected as there is conflict of interest. In the greed of earning fees, the chance of mistake becomes very high. Other side, if some one does not give the assignment to this subsidiary, parent bank may not appreciate and take wrong decision . In both the cases parent bank and client are sufferer.  Same principle applies for Insurance and Mutual Fund activities.  Further there is frequent transfers from parent to subsidiary and vice versa.

  2.       Investment in ARCs and Rating Agencies: Most of the PSBs are shareholders/promoters of Asset Reconstruction companies and Rating agencies. As it is well known that ARCs play major role in case of stressed accounts, the conflict of interest is quite apparent. If the stressed accounts are being assigned to an ARC, irrespective to whatever level of transparency, the role of a company promoted by a Bank is highly objectionable. Same bank lending and post NPA, being assigned to own company can not be justified and the chances of injustice to either Bank or the Client can not be ruled out.

Suggestions: To make the Banks sustainable and stronger for long time, GOI should look into following suggestions:

   1.       PSBs should not be allowed to enter into various different activities mainly those of conflicting    interest i.e. Capital Advisory Services, Syndication Services, Restructuring Advisory, Insurance ,  ARCs and Rating Agencies. Those already into these activities should be instructed to scrap these  business in near future;

   2.       Fund utilisation by Banks should be monitored by a separate committee of experts, other than  RBI, regularly;

   3.       Transfer from parent bank to subsidiary and vice versa should be immediately stopped as this        makes the institution vulnerable to losses;

   4.       Till the PSBs are out of these subsidiaries, Same Bank should not do any business with    subsidiaries to bring in better decisions and transparency.

   5.       Subsidiary Companies should be immediately headed by GOI nominees and designated team.

   6.       Any business generated by Subsidiaries by way of using the office of parent bank or pressure      should be treated as misuse of office.

 CP

NPA Feature: Excess Non-Productive Investments

Friends

While we continue to advise the clients who are in trouble and passing through serious stress , there are certain common features, noticed by us, which lead to stress. Although most of them are mentioned in my earlier posts, still wish to share my views on one more common reason of stress. It is most commonly noticed that the Balance Sheet or may be off Balance Sheet , disproportionate investment is made in to non productive fixed assets (i.e. Land and Buildings mainly)which are nowhere related to the Business and sole motive is to encash the valuation at later date. It is human nature to invest in real estate but excess investment  made out of the business funds can be disastrous . Such investment is done only for future valuation without any other logic. Though these investments look quite good but they take away the business funds and can not be termed as intelligent investment. These investments should be made only from the surplus own funds.

Once these non core investments are made the working capital dries out and thus path of stress is begins. Liquidity crunch wipes out profitability and account becomes irregular. In fact any undesirable investment can be dangerous. Liquidity has to be maintained in any case irrespective to the opportunities available to avail higher valuation. Lenders need to look into such issues seriously as this can be the beginning of dark days ahead. However some times lenders promote such investment as this increases asset coverage but the loss is much higher than the security.

We noticed that higher the undesirable investment , sooner the stress. Such investments made for safeguarding the future of the business is in fact poison for the enterprise. It should be avoided in any case specially if made from the borrowed funds.

CP

Stressed Accounts: Role of Promoters’ Family

Friends

When going is good , everything looks good. The society, Relatives, Friends, Peers, Employees and Colleagues give lot of respect and applause. Everything goes so smooth and fast that it is impossible to imagine about the possible tough time. As called quite often ‘the Charity and challenges begin from home’, exactly same thing happens in business too when the turbulent time starts. Our own people start  doubting the capabilities and even the past achievements. The promoters gradually get replaced by new set of people who are not very positive. Everything is doubted and non communication becomes the most popular tool. Generally it is experienced that the doubts on the capabilities of the promoters lead to fear and hence the situation starts deteriorated day by day. The Bankers ask certain information, Data and explanation which are perceived to be potential threat for the borrower , who , out of fear , either avoids or gives wrong information. The cascading effects of one misinformation is so much that very soon both borrower and lender who are basically partners part ways and start taking actions which is in their short term interest. No one is concerned about the unit, its’ employees and other stake holders. The situation becomes so worse that the unit which was bread & Butter for all becomes a liability and planning starts for getting rid of that poor sick unit.

Family members of the promoter are one of the key stake holders and hence their role is very important in deciding the fate of the stressed units. It is very easy to discard an ailing unit which is not generating any more revenues but to revive, a lot of guts and hard decisions needed. An ailing unit , if treated as family member by the promoter, has great potential to revive. In general, it is noticed that the wealth generated by the unit which is not doing well now, has only one way. Neither promoter nor his family would ever return back ,even a very small part of such wealth, to revive the unit. No one would ever part with the luxury for a short period and that is the basic reason in lot many NPA cases. If the promoters’ family alongwith other stake holders put complete faith in the troubled entrepreneur, the probability of revival is very high. There is no system to involve the family members in ailing unit as the communication is always in legal language by the lenders and hence nothing revives.

Although mistakes are bound to happen but  Nobody is going to repeat the same mistakes next time if chance given. Business has uncertainty as its’ basic character but that given fun too.

In my view, the recovery process should be avoided to the maximum possible and the lenders should start communicating with other stake holders. If proactively handled, the unit has some probability of revival. Family members if ascertained properly can play a very important role in coming out of the tough situation. A promoter with established track of entrepreneurship can definitely bounce back if chance given and intentions are good.

Please don’t mistake me that all the promoters have good intentions. 

CP

Stressed Accounts: Challenges in Restructuring/Revival

Friends

Once an account enters into stressed by way of SMA0, SMA 1 & SMA 2 and then doubtful, substandard and Loss account, the journey is too short and it is like a milking cow getting old and useless . The situation and condition for that matter worsens too fast. It does not take more than 9-12 months before account totally branded as NPA.

A stressed account needs immediate attention and lot of care to handle otherwise and mostly it ends as a loss account with no hope to revive. After some legal battles, the units goes in the hands of typical businessman who deals in scraps. It is really quite painful to see a unit being grounded which till very recently was centre of activities.

There are few options left once the account is in stress depending upon the business potential, asset value, promoters’ confidence in the business and lenders’ trust in the promoters. While disposal of the unit is quite easy and there are many agencies who are expert in that, few cases are revived with lot of efforts. Revival or Restructuring is quite common at the first stage in our Indian banking system but this is not without hurdles and challenges. Let me share my views on these challenges, which you may have also experienced:

1.       Acceptance of Revival /Restructuring Plan: In most of the cases first draft of revival plans  is always rejected by the bankers/lenders.   Lenders take lot of time 3-6 months to give patient hearing to revival plans unless there is some time constraint. The revival plans also get delayed due to impractical approach of the lenders and the borrowers both. Lenders often don’t look at the plan with practical approach , rather they are more concerned with the set banking norms which have already failed in such cases. Borrowers too feel that this is one more opportunity to screw the banks further and demand as much as possible from lenders.  By the time both sides come to the reconciling stage it is delayed by 6-9 months. This delay causes highest damage to the bleeding borrower.

2.       Infusion of Funds by Lenders and the Borrower: Once the revival plan is accepted, the commitments of additional funding made by both the sides  become one more challenge. Borrowers find it too difficult by this time bring in additional funds in the business which is either not there or stuck up somewhere. Lenders too take long time in convincing themselves to infuse funds. In many cases , it is noticed that such addition commitments  by the lenders never come in the business and it is adjusted against interest and other dues already outstanding or to be due in near future. To keep their record clear the lenders defer such infusion .

3.       Valuation and Viability:  Although the valuation of asset is always done by the empanelled valuers, it is quite commonly noticed that valuation at the time of borrowing is much higher as compared to the valuation while restructuring the loan. It is beyond my understanding why the lenders don’t get the three type valuation (Market value, realizable value and distress value) while lending. Why it should be made compulsory that the lending should be done considering the distress value as one of the factor. Further another key issue is the viability of the unit for revival. This is also done by the empanelled agencies but the studies are not carried out properly. The delay and misconception can lead to wrong decision.

4.       Over commitment by the Borrower: Biggest  challenge in the revival is the over commitment by the borrower who is more interested to buy time . Very few cases have seen the timely fulfillment of commitments by the borrower made in revival.

In my view, both the lenders and borrowers try to pass on the bucks and buy time so   the problem is passed on to some more months. If proper revival plans are prepared with honest intentions, there will be great possibility of revival. Also the timely decision by the lenders can help the stressed account to revive. In last one year RBI has come out with two major schemes i.e. 5/25 and SDR. It is working on some more steps to handle the situation of stress accounts but success will be only when both sides understand the situation properly and timely. RBI should consider the views of the entrepreneurs without blaming only to them, similarly lenders should also improve their accountability system and make good use of the tools available with them to handle stressed accounts.  Sometimes a cow can be ill which does not mean it can’t be cured. Lenders are major financial partners and have all authority over the borrower but this brings lot of responsibility on them.

Friends, I never intend to side the willful defaulters or fraudsters but believe that sometimes lenders are party to such defaults and hence to some extent responsible for such situation.

CP

Non Performing / Stressed Accounts: Role of Consultants

Friends

When an account is high rated and well performing, there are many options and opportunities to the unit and the promoters. The money flows in and there is always a que of investors. New Bankers source various ways and means to take exposure in the account and existing bankers not only try to resist the entry of new lenders but also use every ways and means to increase the exposure.  Even the existing consultants use every trick to oust the new consultants and create a mystery curtain around the promoter  to safeguard their existence.  The money is sourced easily and that is one of the key factor for turning account into stress at a later stage. Promoters start adventuring beyond their capacity and without much analysis. A single wrong business decision spoils the party. This golden situation gradually fades away and the account enters into stress zone. Soon it turns into NPA and then new journey starts.

The consultants and advisors who served such clients in good time are generally not very supportive at this stage. I wish to share my views on the Role of Finance Consultants in case of stressed accounts.  The expertise and experience of handling stressed accounts is not very common. Very few Finance consultants enter into such advisory services. The consultant has to associate with such accounts for quite long time as it takes 12-24 months time to resolve such accounts. There are legal, financial and technical issues which hound the units badly. Hence strategy to handle situation is key of the game. Most of the events go unnoticed and the performance of the consultants can not be visualized due to long drawn process. Other side the fee realization is also quite challenging due to stress in the unit. Thus it needs lot of patience to handle such accounts. Unlike the consultancy in sourcing of finance , this advisory of handling stress cases does not bring substantial funding. Only achievement is handling the lenders, working out  of strategy to survive and move forward .

The general perception is that consultant is needed to raise finance whereas the fact is that the advisory services are of utmost importance during the crises or stress for that matter. Any step without proper advice may be disastrous for the unit. It is just like we need better doctor or even surgeon when the disease is more crucial. I fail to understand why the promoters of stress units do not think in this direction. To worse the matter, it is noticed that the management of such units become more knowledgeable in the matters of handling  legal and financials. 

CP

CIBIL –Introduction and Importance

Credit Information Bureau (India) Limited is India’s first Credit Information Company (CIC) founded in August 2000. CIBIL collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to CIBIL by member banks and credit institutions, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to credit institutions in order to help evaluate and approve loan applications. CIBIL was created to play a critical role in India’s financial system, helping loan providers manage their business and helping consumers secure credit quicker and on better terms.

CIBIL was founded in August 2000 by Trans Union International Inc. , an international credit bureau with presence in more than 30 countries alongwith some Indian banks i.e. ICICI, SBI, HSBC, Indian Overseas Bank, Union Bank of India, Bank of India, Allahabad Bank and Bank of Baroda.

Main Object of CIBIL is to help credit grantors to gain a complete picture of the payment history of a credit applicant Credit grantors should be able to gain access to the applicant's complete credit record that may be spread over different institutions. CIBIL collects commercial and consumer credit-related data and collates such data to create and distribute credit reports to its Members which are credit institutions and banks in India. CIBIL’s over 900 strong member base includes all leading public & private sector banks, financial institutions, non-banking financial companies and housing finance companies.

The record in CIBIL is the most important factor in deciding the credibility of a borrower. Once the borrower defaults, the score gets downgraded and ultimately the name spoils to such an extent that no lender will lend willingly. The score gets reflected to all the 900 plus member lenders of CIBIL which covers almost all NBFCs, Banks and Financial Institutions.

The process to improve the credibility is quite long and it may take upto 3-12 months. Borrowers who are passing through tough time gets severe beating from CIBIL score as it closes almost all the doors to raise funds. The debarment of further credit puts the borrower into fix instead of getting any relief. The CIBIL score is the unavoidable factor for every lender. Any avoidance may lead to severe punishment to the concerned officer and hence it leaves no other option of borrowing.

Although it is an important agency and almost all lenders are dependent on this , this sole criteria for lending is also not justified. In my view, the lenders should look beyond CIBIL report considering the other factors also like security value, business potential, certainty of recovery and all.

CP

Strategic Debt Restructuring (SDR) Scheme: Overview

Friends

Recently RBI has come out with a new circular on June,8, 2015 wherein it has elaborated in detail the modes operandi of loan conversion into shares leading to management takeover . The scheme is in continuation of its’ efforts in devising framework for Revitalising Distressed Assets. The concept is based on the general principle of restructuring i.e. Shareholders bearthe first loss rather than the debt holders.

This will enable the lenders to convert the loan into equity and thereby management control from the promoters.  The scheme has been named as Strategic Debt Restructuring (SDR) scheme as it involves change in management temporarily or permanent too. The scheme is based on the presumption that the existing management is either not capable to revive the unit or does not intend to do so. Also this will give more ammunition to the lenders to pressurize the borrowers.  This scheme can also be applied to the cases where restructuring is done earlier and the MRA has necessary clause to this effect. The circular gives in detail guidelines towards conversion ratio and all related matters.

In my view, such draconian clauses needs be studied properly. An entrepreneur who has already lost all the properties, business and credibility is further pushed to corner. There may be some willful defaulters but not all are willful. In business uncertainty is always there and the entrepreneur services the obligation to the maximum possible. By threatening to takeover, there is least probability of recovery, rather the fear in borrower may further push the company to dust. Also the lender is not always at fault for NPA, even lenders are also equally responsible for such disaster. In most of the cases timely relief could have saved the borrowing unit from slipping to NPA. Always the delay in support plays major role in such situation. I also feel that the lenders should also be made equally responsible and thorough investigation should be carried out into their role and actions. Borrower should be given unbiased and patient hearing as he is the person who has taken maximum risk by pledging every thing . The takeover of shareholding and transferring to some New Promoter at later stage may be part of some conspiracy . This may also lead towards new kind of corruption. The scheme also mentions about the divestment to new promoter and also refinancing the debt to new promoter. Such refinancing may lead to some kind of conspiracy . Thus such scheme is not only impractical but full of flaws.

CP