Asset Reconstruction Companies (ARCs)

Friends,

I wish to share my views on Asset Reconstruction Companies operating in India, their purpose and approach. ARCs have not only failed in our country but also damaged the economy. 

Asset Reconstruction Companies (a dangerous nexus )

When an entrepreneur dreams of setting up new business or industry he is the first to put in his money and borrow from the bankers by further giving his properties as security . By the time he set up the unit he is exhausted and left with nothing except his dreams . He put in efforts 24*7 every day for end number of years. Till he honours all the commitments he is respected by the lenders. Interestingly,  he is rather instigated to borrow more and more by the bankers. It is this push in most of the cases which leads to NPA. Bankers in the process to achieve the targets and get promotions quickly lend money so loosely that the seeding of NPA is done at that moment itself . Later the officers get promotion and move career ladder fast. The situation becomes so volatile that any mistake by the entrepreneur can collapse the whole organisation. In business mistakes happen and the result is defaults in repayment of loans and interest. By the time account gets NPA the officer reached to untouchable heights. On the other hand borrower is pushed to corner now and does not get any help from any side . He is cursed, abused, insulted and pushed to the corner to such an extent that he is branded as thief. Gradually legal process starts and he is so much stressed that instead of focusing on business he starts fearing and try to detach himself from the business and take various course of action to avoid the repayment. By this time he is branded a defaulters or fraudster. He is threatened by investigations and CBI and so on..the news and notices are published in newspaper along with his name, photo and so on. Instead of running business this poor business man gets stuck up in taking various actions to safeguard himself and his family interests.

The process in the banks and lending institutions starts to finish off the promoter. He is never helped to revive the business . In fact sometimes it is felt that the some bankers wait for this situation to happen so they can en cash this moment for their benefits. Please remember in most of the cases loans sanctioning officers are moved by this time and new officer is not interested in reviving such units as there is no benefit to him. Then new phase starts and the real game is on. Bankers clean up the balance sheet and auction the loans to Asset Reconstruction Companies ( ARCs).

Here I would like to mention about ARCs , their purpose and current status . ARCs are basically formed under RBI guidelines to help in revival, reconstruction or resolution to a company which in stress and defaulting in repayments. ARCs were expected to handhold such companies to help them in standing again and also help the society to survive. Currently 14 ARCs are operating in our country and have acquired loan portfolio of more than 1.00 Lac crore rupees. Once the loan account is assigned to an ARC, no question is asked to the bankers and they are relieved from any responsibility. Due to this reason the bankers use this tool so they can safe guard their personal interest. Once you assign the loan to ARCs, any settlement will be by the ARCs and hence no question asked. Also there is there is a cartel who captured maximum loan portfolios. The basic purpose of these ARCs is no where near to revive the units , they go for quick money which is into disposal of the assets. In the process they also become lenders with interest charging more than 24% p.a. These ARCs are minting money at the cost of our economy. Poor businessman gets crushed under their butcher activities and can not survive for long. He losts every thing and top of that branded as defaulter whom no one can lend money. His name appears in CIBIL list and becomes untouchable. ARCS have cornered huge money which is directly indirectly under nexus with the Banks.

There should be detailed investigation into :

      a)      Role of ARCs, Loans assigned to them, how many units they really helped in reviving, how many assets they have disposed off and what is their earning in last 5 years.

      b)      Why banks should not help the units to revive? When they lend, they appraise the unit then how it happens that account gets NPA . The end of an unit leads to unemployment of large number of poor people who become victim of all these nexus.

    c)       Why the responsibility of bad loans is not put on the complete chain of officers who have sanctioned the loan and monitored through various system and procedures. Why they should not be made responsible for revival.

      d)      The investigation shouldn't be of the entrepreneur only but also the banker.

   

   C P 

Year 2014-15

Friends
New financial year 2015-16 has started and analysis of previous year has begun. The numbers are trickling in which are self explanatory. The inflation is slightly under control, IIP is almost on border but improving, govt has raked in abt 2 lac crores in coal block auction and another 1 lac crore in spectrum auction. Monsoon is soon to enter in the country but uncertain rains and hailstorm have caused serious damage to the agriculture. GOI has just finalised biggest arms deal to purchase Raphael aircrafts for defence and many more happenings. Banks are continuously loosing money through bad loans and finance sector is yet to recover.
One of the good decision has been of my elder daughter Nikita building her own law firm and soon she wd have her own identity in corporate world. My blessings are always with her, I wish great success for her career. I wish my younger sibling also take such decision in near future. We all are happy with her decision.
Professionally year 2014-15 had been very challenging and turbulent. This year has taught a lot many things to me and also opened gates for new opportunities . I am sure from current year onwars the seeds will bear lot of fruits.
CP

Reasons for Stress in a Company

Friends

I thought to share something about the corporate stress . 

While advising the clients mainly in stress, I noticed certain common features. These can be used as warning signals too which may help businessmen to avoid the trap of stress.

Common Factors :

1.       A team of highly paid Executives : In most of the cases, I noticed that the companies hire highly paid executives who roam around for more and more salaries. These people are not committed towards the organisation but they will try to extract more and more for themselves. They are good at communication skills and that skill is mainly used in marketing for themselves. Such people boast a lot and take the credit for every good thing in the organization and blame the promoter for all the failures. Such people can’t face the tough time and run away immediately after the warning signals or the promoters also throw them away once their real capabilities surface.   High employee cost adds fuel to the fire and cause serious losses to the organization.

2.       Expansion of capacities:  Generally the company runs well at the initial stage of operation. The performance lures the promoters to expand the business. The confidence turns into over confidence and hence capacity expansion is always many fold. Such decisions are generally taken in boom time which does not last long. By the time the higher capacity is in place, demands slow down and the selling becomes tough. More capacity reduces margins, increases competition and the terms of sale are liberal. This situation leads to a dangerous zone where recovery may be a big issue. Gradually the company falls in the trap and gets into stress due to low recovery.

3.       No control or supervision on the cost part: When time is good , profits rain and promoters loose the focus from the costing. This is quite common feature in stress accounts. By the time the capital starts wiping out, it is too late. The promoters live in different impression of high margins. The fact that the costing does not support the business, the capital starts wiping out immediately. The signals come bit late and by this time the situation goes out of control.

4.       No change in product mix: The impression that business is growing, margins are same or higher and fear to move forward leads to this situation of stress. The management of the company does not try to different product mix fearing loss. They believe that same product mix will give same or high margins for indefinite period.  They get shock when suddenly the existing product mix does not yield the same margins or even resulting into loss. By the time they take action it becomes too late.

5.       High overheads: No control over costs, high business development cost and  extravagance in day to operations leads to great damage to the company. This acts as a slow poison because such expenses can not be curtailed at later stage. The promoters attach their show off with day to day business and the percolates to the down side. Executives too spend lavishly. There is no control over expense vis a vis result.

6.       Old team which does not allow the new blood to enter into policy decisions: We noticed that the team which is in place since long indulge into politics. They don’t allow new team to grow and hence new ideas are not entertained. Existing team circles around the promoter which acts as a solid barrier to look into the outside reality.

7.       Over support by the Bankers: When going is good , financiers (Banks particularly) chase a lot to the borrower to take more money. This is basically done to achieve more business.  This provide more fuel to burn. The over support and carelessness damages the company in long run as the company becomes highly leveraged and interest burden increases. If the revenue generation is not same or less than projected, the stress automatically enters in the company. 

8.    Absence of timely support by the bankers: Bankers behave like fair weather friend. When going is good, they offer more than required funds, but when it is tough they try to pull out of the company or even destroy the company with sole purpose of recovery.

9.       Overdependence of the promoters on key people: As mentioned above, some people take full control over the promoters and they call the shots. Such people play politics and never allow others to enter into the artificial ring. Promoters also get comfort in this ring but it damages extensively to the company. By the time promoters understand the situation, it is too late and the company goes into stress. Later on such team gradually fades away once the situation gets worse.

10.   Rampant Corruption and inefficiency in team: Stress is mainly caused due to inefficiency of the team, Over confidence of promoters and over flow of funds. In this situation the promoters start loosing the grip and surrounded by few people who know how to handle the promoters. These people also start enjoying power of relationship with the promoters. This results into the rampant corruption and politics. This results into severe stress and mismanagement in the company.  It has been noticed that certain company officials make more money than the promoters and run away from the company. They also possess lot of sensitive information and hence the promoter can not take any action.

11.   Promoters’ overconfidence in business development: This is one of the major reason for stress. Most of the expansion decisions are taken during the boom time. Promoters feel that the current success will continue forever and they will be able to get higher success even if the business expands manifold. The expansion takes away liquidity from the business and stress starts. Gradually repayment of loans and interest becomes problematic and huge holes are created in the business.

Thus common features for stress in a company can me summed up as mismanagement, promoters’ overconfidence, inefficient & Corrupt team and  poor cost control.

CP

Indian Economy-what is needed

Friends

In my view the Indian economy is passing through a very sensitive phase which needs special focus.

Indian economy -A note from the point of view of businessman/ Industrialists:

UPA was ruling the country since 9 years without any major challenges and the last 3 years were witnessing policy Paralysis. The country could not see any vibration as if every thing was left in the hands of the god. Inflation was continuously increasing and people were simply waiting for this government to go as there was no effect on the deaf ears of the leaders in power. After long wait new government came amidst lot of chaos and confusion. The business fraternity was expecting positive view and support from the new rulers. Though they were taking issues on priority, it was long wait till first boos up came in the form of interest rate reduction of .25 bps. We lost golden opportunity of cheaper crude prices to boos the morale of the business community. In fact in last decade, the businessmen who defaulted or failed were given insulting treatment. There may be some cases of wilful default, fraud or cheating but maximum businesses defaulted due to the circumstances beyond their control. I suggest following measures immediately which can not only revive the economy at grass root level but also save the jobs of millions serving in private sector:

1. Those industries reeling under severe financial crunch but still operating some how shall be immediate helped by extending fresh funding if possible or by restructuring their loans. The terms may stringent enough to stop further financial losses to the lending institutions. 

2. Industries operating but NPA , SHALL BE given MINIMUM SIX MONTHS' moratorium towards repayment of interest and principal. This will help them stand on their own.

3. No new account shall be categorised as NPA for next six months. Such borrowers can arrange funds on their own to avoid branded failure under CIBIL and come out of the current tough situation.

4. Role of ARC shall be reviewed as they have caused more loss to the economy then any benefit. These were floated to help business revive but rarely any account has been revived by them. They behave like vultures where they can get 24-30% pa return on their meagre investment. There should be detailed enquiries on the accounts taken up by them ( recently they have acquired abt 50k Crs. account paying hardly 10% to the bankers. In fact the bankers prefer arc instead of helping the borrower as this relieved them from any accountability .

5. Government should think seriously on building up an institution like IIRB, which is scrapped now, who is exclusively helping the business to come out from the stress. A fund should be created separately instead of giving support to the bankers who use such funds to lend further.

6. MSME segments needs immediate relief from interest rates. 

Above all there should trust between lenders and borrowers notwithstanding the fact that some of the borrowers have defrauded the lenders but number of such borrowers is not more than 5% , however in value terms it may be 15-20%. Big borrowers have given big hit to the lenders , while small borrowers suffered most. 

C P

25th Wedding Anniversary

Friends

7th Dec. 2014 marks the occasion of Silver Jubilee of my wedding with Shashi. Exactly 25 years ago on 7.12.1989, we got married amid curfew in Jaipur. The day of wedding was not only cold but also bit tensed as there was no entry in the city after 6 pm and hence marriage was arranged outside the city. The marriage was finally happening after engagement for more than 9 months. 

The celebration of 25th Anniversary was arranged in Ahmedabad. I am grateful to all the nears and dears who spared time for this small event and came all along from Jaipur and other places. All the relatives who made their presence in Ahmedabad were too kind and adjustable despite some discomfort in logistics. Every one gave their full support and cooperation to make the event grand success.  

The love, affection and blessings showered by all the guests can not be described in words, it can only be felt. It makes me feel proud of my friends and relatives who love us so much. We missed some of our close friends and relatives who could not join the celebration despite their best efforts. 

When we look back 25 years ago, many young kids had either did not born or were too small kids. These kids are now Boys and Girls and even mostly married . These boys and girls were real army to make the event live and successful. 

I am very much thankful to all my friends and relatives for accepting  invitation and sparing time to descend at ahmedabad. Each and every relative and friend gave their best to make it a successful event . I am also obliged with the presence of my parents to bless us at this event. Nikita and Hitisha also deserve a big thank for organising the and making it successful. Me and Shashi are specially thankful to all those who were constantly sharing the photos and videos through social media. The event would have not been successful without the blessings and messages of those who could not attend physically but were constantly supporting and guiding us. The event was made successful by our local team who were putting tireless efforts since about a month .  I wish to share some of the messages, pics and blessings sent by the family members.

We are really blessed to have such a wonderful lovely  relatives and friends.

CP

Friends

Last week me and my better half Shashi were packed for a surprise vacation to Bali, Indonesia. The packaging was done by our wonderful daughters Nikita and Hitisha who along with their other cousins planned a short trip of 5 days & 4 Nights. The visit was very well planned in which every small factor was properly taken care of by them. I can't express my feelings for this wonderful gift to us in words but feel so much proud about their capabilities, dedication and decisions. As students they had planned this since last two years and had saved from pocket money so they can send their parents for a vacation . It is really matter of great satisfaction and proud for me as a parent of such wonderful kids.

Bali is a good tourist place in South Asia which dominated by Hindus . A well maintained tourism spots, points and good people. People of Bali are aware that tourism is major source of their revenue and hence tourist shall be given the best.

CP

Friends

In politics any thing is possible and there is no friends nor foes. Recently the BJP and SS fought elections jointly in Lok Sabha and immediately thereafter parted after 25 Years' of association. The reason is quite simple- it is business and every one is fighting for survival and growth. Hence every one is associated with each other but no one permanently attached. The decisions of joining and parting are taken on the basis of various factors . No one is obliging others rather everyone is serious about their self interests. Strategies are made on basis of informations and situations. Some times the decision get wrong and it becomes very difficult to rectify. The rectification it self is very painful and quite time consuming . SS got wrong in negotiating with BJP while allocating the seats and then while joining the BJP government at centre and state.

I am closely watching this situation and feel that in business also we can use the same tactics while dealing with the clients and vendors. Negotiation is a very powerful quality and can be sharpened with experience. I found that one has to be ruthless in dealing with other side, full of information , positive attitude and good strategy. Whenever opportunity comes it should be given due respect and try to make it a success.

I am not concerned what SS or BJP wd do in future but one can learn a lot from this and use the same tools in business to grow further.

CP