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.
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
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