Debt Resolution & Public interest

first_imgThe banking business is basically to raise funds through equity, borrowings and public deposits.The funds so raised are lent to businesses and individuals. Hence they are fundamentally trustee to utilise by lending, investing etc at utmost care, therefore before lending and to take care of the safety of funds, they need to evaluate properly the creditworthiness, understanding of businesses, regular monitoring and taking appropriate actions timely. They are supposed to perform to take care of legal, regulatory aspects and right documentations. However, their systems and processes must be easy from an operations point of view and transparent.However, we have seen a large number of NPA accounts. It means certainly the lack of performance of trusteeship. In organisations, lending of the debt funding by the banking sector is much more than promoter equity funding. Hence banks are larger stakeholders and therefore the fiduciary responsibility is further enhanced.Further, the regulatory authorities like RBI seem to monitor many regulatory aspects including provisioning and accounting aspects. But still, it seems lacking on aspects of performances as trustee.The ministry of finance, GOI also seems to have no means to look from the aspects of performance as trustee. They do have representatives in the boards of banks. Probably they look from the aspects related to protecting GOI’s equity and policy aspects. As a board member, they are supposed to take care of all governances aspects.After the introduction of NPA resolution circulars by RBI and recovery of debt through NCLT processes, many settlements are taking place bilaterally and some of the accounts are referred to NCLT.The borrowers are able to settle the debt in full and final at nominal amounts. Banks are taking heavy haircuts going even up to 90% of the debt. Many time it is noticed that before such settlements are done a right due diligence is not performed and businesses are not rightly evaluated at this stage of settlement. Banks balance sheets are getting hit badly by thousands of crores. The haircut is even one account also runs in millions. Not only bankers are taking a financial hit but operational creditors and employees are also getting hit badly.Further, it is noticed that the resolutions are taking place with the funding from outside India which means companies are indirectly under their control at minimal prices. It is debatable how it is helping in achieving intended objectives and also achieving ATMANIRBHAR BHARAT.Surprisingly there is no agency who goes in the root cause of such defaults, take necessary actions to avoid defaults in future and make people accountable. The decisions of accepting such huge haircuts by banks are left with bankers. There are some processes which most of the times seems used just for the sake of following the processes and for tick mark or ignored.The bank funds are of public and evident of deficit in trust. It needs to look into thoroughly to come out from such a mess to save public money going forward.last_img read more