6/15/2015

Banking on dual strategy - The Hindu

BUSINESS INDUSTRY

Published: June 14, 2015 23:24 IST | Updated: June 14, 2015 23:24 IST
June 14, 2015

Banking on dual strategy

K. T. JAGANNATHAN

The inequality, nay the differential treatment, between a common citizen and a corporate citizen is conveniently explained away by
pointing to the so-called larger role played by a corporate citizen in the economy-building exercise.
If balancing income and expenditure is an unavoidable necessity for a home, it should be equally so for a country. So saying, many have
relentlessly argued for the need to balance the budget of a nation. In the same way, cant we also argue that what is applicable for a common
citizen should also equally apply to a corporate citizen? Given the role and responsibility of the government in shaping a welfare society, it may
well be foolish to demand a balanced budget from the government. Is it, however, incorrect or too much to expect a secular treatment to
individual and corporate citizens alike.
The recent decision of the Reserve Bank of India (RBI) to empower banks, which have been reeling under mounting NPAs (non-performing
assets), to not only convert their loans into equity, but also induct new promoters into defaulting firms, which fail to achieve prescribed
guidance agreed upon at the time of debt restructuring exercise. At one level, the RBI move has been hailed as an extraordinarily pathbreaking attempt. At the other end of the spectrum, however, it has elicited considerable scepticism. Questions have been raised, doubts have
been cast, and allegations too have been hurled at.
No doubt, the apex bank has come out with a detailed guideline on how banks should go about in a calibrated way in recovering their money
from these recalcitrant firms. Yet, an articulate section is not quite convinced if largely empowered banks would be able to go about their jobs
in a professional, no-nonsense and transparent manner while dealing with the task of finding new promoters for firms which have fallen into
bad times.
The inequality, nay the differential treatment, between a common citizen and a corporate citizen is conveniently explained away by pointing to
the so-called larger role played by a corporate citizen in the economy-building exercise. This argument, often times, allows a corporate citizen
(read company promoters) the legitimacy to justify the financial mishaps or mismanagements. This privilege if you could call this so is not
available to a common citizen, who is also subject to due diligence before being given a loan. In this networked times of digital era, any loanseeking common citizen is subjected to a greater scrutiny what with the emergence of credit information bureau. An involuntary default of
even a paltry sum could render this common citizen ineligible for loan. The rules are, however, different for corporate citizens. Ironically,
payment defaults enhance their relationship with their lenders. Often times, lenders become fidgety, and the defaulting corporate citizens turn
aggressive. History is replete with instances where good money had chased bad money only to evaporate in the end! Read against this
background, the RBI move is a welcome initiative. The exercise has to begin somewhere. And, it has begun just now. Hopefully, this will right
the wrong in the system that has been there for long.
One can, in a way, argue that it is the common citizen who is paying for the misadventures of corporate citizens of the defaulting kind. After all,
banks dabble in public money. Given the hugeness of the NPAs primarily arising out of the corporate defaults, one finds it hard to
comprehend the noise consistently made by India Inc against subsidies especially those intended to reach a common citizen. When will this
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6/15/2015

Banking on dual strategy - The Hindu

inequality in the banking system go? Will there be a level-field in the loan space?
jagannathan.kt@thehindu.co.in
Printable version | Jun 15, 2015 2:40:11 PM | http://www.thehindu.com/business/Industry/banks-and-nonperforming-assets-banking-ondual-strategy/article7313090.ece
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