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.