Bank Loan Defaulters – The Way Forward

The month of March is last month for Indian financial year and on 31 March all businesses close their accounts. Therefore it is a very important month in the financial calendar, probably the most since a business’s health would be decided once the accounts are closed. This year it is no different in principle but in reality it is likely to be very different. This March is going to be a month that could aptly be termed as “Go after bank loan defaulters month”. Frankly the government will do well to actually announce the same and make it an official slogan.

The flamboyant Vijay Mallya (VM) has given the slip. His exit will be debated for months to come including who colluded with him to facilitate his easy exit to London. It is also pretty obvious that only a miracle can bring him back if Lalit Modi example is anything to go by. VM is a bigger fish, has more pounds in his kitty and therefore UK is not likely to oblige so easily. His recent pronouncements too indicate that he has gone for good. While the efforts to get VM back can go on and follow their due course what is important for the government is to ensure others in the list of defaulter, many much larger than VM, do not do an encore to leave the government red faced. So what should the government do?

In all fairness it should start with defaulters who are or have been lawmakers – in other words elected representatives of the parliament or any state legislative assembly. This would be in line with the age old saying “charity begins at home” – only in this case it could be called “accountability begins at home”. Without a doubt all these fraudsters who are also elected representatives would have used their political clout to rob the banks one way or the other. Therefore it may be a good starting point to cleanse our elected houses first and foremost. This will pay hefty dividends if the government is serious, acts expeditiously and brooks no nonsense from any of the defaulters in this category. It will also send the right signals across the country and many may be forced to seriously return their ill gotten gains voluntarily. Some of the biggies include former Congress MP Lagadapatti Rajagopa, who owes Rs 34,000 crores, TDP MP Y S Chaudhury, current Union Minister of State, former Congress MP Venkatrami Reddy (Deccan Chronical fame), BJD MP Mr Jay Panda and TDP MP Rayapati Simbasiva Rao. Apart from these in all probability there will be many more both in parliament and state assemblies who have smaller loans pending against them. Such defaulters if dealt with expeditiously should bring a decent part of the loot back into bank coffers, particularly since as per one estimate as many as 100 MPs alone owe amounts of various magnitudes to banks. Without a doubt State legislative assemblies will throw up even larger numbers. This clearly shows an unholy nexus between banks and politics that needs to be addressed immediately.

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If the BJP government wants to do the nation a big favour, it should move a bill that should ask all elected representatives to declare any loan that they may have defaulted upon or is still outstanding against their name or their immediate family. The bill should also have provisions to cancel the members’ election forthwith in case they have defaulted on any loan and attach all his assets to repay the loan after giving them a grace period of not more than 30 days. Starting now this exercise should be completed within next four to six months. A special tribunal should be appointed to deal with the cases on fast track with maximum number of hearings for each case clearly defined to avoid delays. This will have political fallout but if BJP has no skeletons in its cupboard, then it can only benefit the party in the long run. Even if a few skeletons do emerge within BJP it may still do BJP immense good to get rid of them since sooner or later they are likely to soil the party’s image. If it is difficult to get a suitable bill passed in the parliament, the government should consider the ordinance route.

While the above is going on all other defaulters too should be listed and names put in public domain to warn all banks and other investors about their dishonest track records. Individual banks must form dedicated legal teams to go after each defaulter who owe the bank more than Rs. 5 crores with clear guidelines to separate wilful defaulters from others. No mercy should be shown to the former while the latter should be on notice to ensure compliance of loan terms. Restructuring of loans or conversion of outstanding amount to equity must be done on a very judicious basis and should not be used as tool to let the defaulters off the hook. The banks must see merit and future growth prospects in any case that needs restructuring or conversion of loan amount to equity apart from relevant industry sector forecast for the years ahead before arriving at any decision.

All other smaller defaulters should be given notices to pay up with a grace period of six months during which it must be ensured that no assets are transferred or sold without the concurrence of the bank concerned. The government must target 31 March 2017 as the final date for recovering as much amount as it can after which it should be ruthless and take extreme steps as required to recover any dues from defaulters. This procedure should apply to all including large farmers. Cases of framers and businesses whose loan amount is below Rs 50 lacs must be reviewed. Their loans may either be written off where there is a genuine reason or settled with a onetime formula to close the books. This should not apply to those who have availed personal loans for property, education or vehicles.

Non Performing Assets (NPA) of Banks is not only a national problem but also a national shame. Its genesis lies in exploitation of political clout, connivance of some dishonest bankers and the guileful approach of those availing the loans. In light of this the authorities have to come down with a heavy hand on all three. Normal legal procedures will take the government and the banks nowhere. Unless some drastic measures are taken on emergency footing, realisation of bad loans will also remain an ever shifting mirage like the black money. Hard times call for hard decisions and a leader’s true worth is known based on how he performs during such times. Field Marshal Sam Manekshaw, Air Marshal Arjan Singh and Admiral S M Nanda stepped in to take India to glory with their teams in 1971 on the war front. Can Mr Narendra Modi and his team do it in 2016 in this hour of need of the nation on fiscal front?

It is time the government came forward with revised bankruptcy laws that were promised over a year back. The disposal of seized assets of defaulters must be done efficiently and expeditiously with minimum litigation to derive maximum value at any given time instead of the past practice where such assets languish for years with constant reduction in value. If small public sector banks are unviable and operate inefficiently, it may be time to either merge them with other larger public sector banks or even consider selling them to private operators. For a developing nation of the size of India, it is extremely difficult for government to keep on infusing capital in government controlled banks. It may be prudent to reduce the number of public sector banks or even consider offloading majority holding to private sector on selective basis. The government may also consider corporate lending beyond a certain amount to be done by only private sector banks since some business houses do view public sector banks as sitting ducks when it comes to defaulting on loans.

The government and RBI deserve a pat on the bank to at least have had the courage to bring the problem of non-performing assets (NPA) and loan defaulters of banks in the open and to ensure that bank books were not fudged as per past practices over many decades to over state assets. A swift and efficient handling of this issue will also help to infuse confidence in the system and ensure corporate lending takes off again for industrial and infrastructure growth in the near future.

Saroj Chadha, an engineering professional, is a successful entrepreneur. Having retired from the Indian Army after having served for over 23 years, he has also been a consultant for leading Indian and Multinational electrical companies. He lives in New Delhi.

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