Riyaz Ahmad Bhat
During the last few years, a repeated process of restructuring repayment schedules of debts availed by the corporate borrowers from Indian banks has resulted in surging of restructured portfolio of banks to more than Six lac crores. This portfolio which attracts heavy provisioning is a continuous bleed for the income earned by these banks from honest and dedicated borrowers who stick to their agreed repayment schedule. The restructured loan portfolio is the second concern after NPA which is giving pain to banks because these assets which are potential NPAs disturbing their financial health. This restructuring depicts the nature of changed relationship between a lender and borrower in modern times and is often debated.
To understand the restructuring one has to understand historical background of relationship between a lender and borrower which forms the basis of any debt contract. This contract governs the availing of credit from a lender and putting up obligations on borrower for repayment of that debt. In terms of this contract, usually the borrower agrees to repay the credit availed from the lender in a structured manner along with a fixed rate of interest or profit. This term of fixing the rate insulates the borrower from any further claim by the lender who may do so on increased earnings or windfall profit during his progress of business or increased value of the assets created out of availed debt. In ancient ages, in case of the failure of the borrower to repay the debt, the repayment was affected by the state through sale of the assets owned by the borrower. Also, if such a sale was not sufficient to cover the debt of lender then serving the defaulter with severe punishment was used as deterrent against imminent default of credit exposures.
In today’s people’s governance system it is felt that mostly the balance of power has shifted from lender to borrower. A common perception is that the lender after taking the credit exposure in a business venture has to live on the assurances of borrower who pretends to payback once his business activity starts generating the profits. Mostly such a situation emerges once an inherent risk precipitates in the business venture and the envisaged projections made while conceiving the project go wrong. The option exercised by the borrower remains to approach and convince his lender that the failure of envisaged position is a temporary feature for which needs a gestation period or further infusion of capital, hence, a relook of project is needed to structure the repayment plan afresh.
There have been wide ranging opinions with regard to approach adopted by the banks in restructuring or rescheduling of repayment of loans availed. These opinions are quite divergent and belong to two extremes. On one hand, one set of experts believe that when a business venture fails precipitating an inherent risk then it is matter of quick evaluation which should decide whether the project is to go for liquidation or review. They opine that if the promoter can bring in more capital to restart it for profit generation the lender should take a call for restructuring. They are of opinion that pumping in more money of the lender disturbs the profit generation by burdening the project with extra interest cost and heavy repayment schedule. This set of experts, including the Ex-RBI Governor Raghu Ramrajan believe taking on the route of restructuring of every failed venture is just an ostrich method to push the existing problems towards future and often same emerges with more complexity. To substantiate their point of view the experts provide the figures of restructured portfolio of banks which has grown over a period of time from several thousand of crores to more than six lac crores and some of these ventures are now being referred to NCLT (National Company Law Tribunal) for liquidation. The glaring example quoted is of the telecom sector wherein debt availed by telecom companies to the tune of 40000 crores was restructured under SDR(Special Debt Restructuring) but falling subscriber base of these companies is not going to back the envisaged recovery plan of these companies.
On the other hand some experts opine that performance of any sector has never been a smooth sail and its performance over a given period of time is made of consecutive troughs and crests. In such a situation it is definitely possible that if an un-envisaged inherent risk precipitates then a safe option would lie in reviewing of the project so as to give a breather. They are of the opinion that such an approach is never beyond the scope of usual risk mitigation of business. To substantiate their point of view they bank upon the period of economic slowdown of Steel and Power sector in late nineties and consecutive economic growth observed during 2000-2008 in Steel and Power sector. It remains a fact that during period of heated growth in a sector the weak bulls turn into milky cows wiping out tears of lenders.
From conclusion drawn after analysing arguments of both the sides it is quite evident that to have a relook of any business hit by an un-envisaged situation is not bad. But it also remains a fact that due to interference in governance of banking system this option has been abused a lot. That has been reflected by announcing various schemes by the Government on various occasions owing to various non commercial pressures. The announcement of these schemes has a public perception of giving an escape window to the influential lobby of those promoters who have siphoned off their investments after overstating cost of their projects at the time of financing. It will be in fitness of things to state that unless the mechanism of involving lenders in management decision process of rehabilitated beleaguered units is ensured it will be difficult to monitor the usage of capital infusion intended to turn around the unit. Till then the sharks, which use restructuring as a stopover for obtaining remission of debt or a part thereof, through OTS(One Time Settlement), shall make merry and the lender banks have to compensate the losses by mantaining high interest rate for honest borrowers.
(The author is Jammu and Kashmir Bank Officers Forum)
Email:jkbof2017@gmail.com
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