S. MURLIDHARAN B L : 23 MAR 2013
The other day, Finance Minister P. Chidambaram made no secret of his displeasure at the indulgence shown to wilful defaulters. These are people who have the capacity to repay, or are guilty of diverting loans for personal gain, or for purposes other than the ones stated in the loan applications.
The financial system indulges them through endless corporate debt restructuring. Canara Bank is wringing its hands helplessly after Deloitte reportedly admitted its inability to trace the loan of Rs 400 crore it extended to a Hyderabad-based media group. It is now knocking at the doors of the Debt Recovery Tribunal.
The media group’s dues to the Indian banking system are in the region of Rs 5,000 crore. Its promoter’s dalliance with cricket by sponsoring an IPL team is well known.
The rumour mill has it that the bulk of the money owed by the group has found its way into cricket investments, apart from investments in fancy cars. Another cricket aficionado and liquor baron, too, owes our banking system a whopping Rs 7,000 crore. For too long has the system winked at the shenanigans of wilful defaulters, sometimes going to the extent of converting the outstandings into equity at exaggerated valuations.
The Sick Industrial Companies (Special Provisions) Act, 1985, made industrial sickness fashionable by extending several concessions to sick companies, including stay of coercive legal proceedings against their assets. There were many instances of contrived or feigned sickness, with the BIFR unable to tell between what was genuine and what wasn’t.
The indulgence to wilful defaulters has, predictably, spawned a slew of jokes. Such aphorisms as “you borrow in lakhs, you are in trouble with the bank; borrow in crores, the bank is in trouble with you” have become the stuff of folklore. Levity aside, the truth is the lot of the financial system is not hopeless; but only if it bestirs itself and goes for the jugular of the defaulters.
BENAMI, HAWALA
There is a view that promoters can take shelter behind limited liability. This is not entirely true because the financiers invariably take a personal guarantee from the promoters, be they individuals or corporates. Such personal guarantees should be invoked without the slightest hesitation. The institution of benami, of course, makes things difficult for financiers in India. The money trail is also often lost in the dizzying maze of shell companies acting as a buffer. Add the hawala route and the repertoire of tricks at the disposal of the wily defaulters is complete.
A frontal attack on benami brooks no delay. Vested interests have been scuttling it since 1988, when Rajiv Gandhi made bold to fashion a law that sent fear down their spines with confiscation staring them in the face. Inter-corporate loans need to be regulated more strictly.
(The author is a Delhi-based chartered accountant.)
(This article was published on March 22
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