With
almost 17 per cent of advances by the public sector banks coming under the
toxic category of “stressed” assets, the banks and the government have not yet
figured out how to handle such a huge crisis. The only person with a clarity on the issue , that is RBI Governor
Raghuram Rajan, has announced his decision not to seek second term, following a
smear campaign against him by BJP leader Subramanian Swamy , supported by some
powerful politicians and businessmen, who felt uneasy at the way Rajan was
doggedly pursuing the clean-up operation of the state –owned banks.
It
is not that people in the government and the banks do not know what can be done
about the problem of Non-Peforming Assets which run into several lakhs of
crores of rupees. The only solution lies in identifying the willful defaulters
and those who found themselves in such a situation following turn of economic
events after getting into the trap of exuberance of 2007-08 when corporates
with low or no debts on their books were considered too conservative to grow.
But the problem is, who will bell the
cat ? Nobody wants to take personal risks for the larger good of the society
and the economy.
Under
the given circumstances, the solution lies in what people call : cutting the
losses or taking hair cuts by the banks. Put simply, banks must settle at
waving some part of the loans and the interest even though bad assets are
sought to be revived. The question is: Who will decide about these hair cuts
and taking losses. What is the guarantee that five years from now, these people
are not probed by CBI or any other wing of the enforcement machinery , if there
is change of the government.
Though
the Bankruptcy law has come into force, its implementation would take at least
a couple of years. Besides, even though the law is clear about the concept of “limited liability or promters in a corporate
entity” , the public discourse on the loud media , especially of television,
sees promoter and the corporate as a single entity. The basic idea behind the
corporate structure of ownership is that the promoters’ liability is limited to
his investment in the entity. If the corporate promoted by him sinks, he loses
his investment. Unless there is a malfeasance on his part, you cannot hang him
for a company going bust because of his misconceived business ideas and errors
in judgements.
That
is the real challenge in restoring the banks and corporates under debt stress
to health.
