Takru’s tough talk: Banks must seek management change before recasting corporate loans

B L :MUMBAI, AUG. 13: 2013 

The Finance Ministry wants banks to get tough with wilful defaulters, going to the extent of even seeking change in management of the enterprises they run if they do not pay up.

Addressing a gathering of top bankers and industry officials, Rajiv Takru, Secretary, Financial Services, said: “Companies must get used to the idea of change in management. If they cannot handle a company, then they must make way for another set of professionals.”

Bankers have been told to insist on management change before they restructure the loans of companies that do not repay loans because of poor decisions taken by the management earlier.

“Half the time the companies are in a mess because of downright poor decisions of the management. In such cases, I don’t think they have any moral right to continue,” Takru said.

He said that it is understandable if companies are delaying payments because of factors beyond their control, such as fuel unavailability, environmental clearances and global factors.

OPPORTUNISTS WARNED

Takru, however, cautioned banks against companies and managements which take advantage of the distress in the economy to restructure loans and delay payments.

“We are seeing more and more cases of people who are taking advantage of the distress, trying to go to the debt recast cell, trying to go back on their obligations, not paying when they are supposed to, trying to negotiate deals with the banks for moratorium and better interest rates,” he said.

The banking system has been “too” tolerant of such behaviour and this is not required, he said. Companies cannot sit back and expect that banks will continue to take hits on their behalf, he added.

Takru told that everybody, including corporates, should make a deliberate attempt to make growth more inclusive.

Banks must go into rural areas and set up branches there, he said.

“The extension of banking and financial services to un-banked areas is completely non-negotiable,” he said.

Till such time branches are not established in these un-banked areas, banks can make use of business correspondents as a temporary bridge to meet the banking needs of people in such areas.

“People borrow from moneylenders at high rates and park their deposits with unregistered chit funds because the formal institutional mechanism (for savings and borrowings) is inadequate,” he added.

He advised banks to install more Automated Teller Machines (ATMs) in rural areas, which will also be capable of taking deposits.