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
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