Time had come to crack the whip on corporate defaulters. The Reserve Bank of India’s decision to hold an entire business group as a defaulter even if just one group company fails to repay a loan, is most welcome
One among those countless discernible naïve idiosyncrasies could be tallying the mundane affairs of the day and night with an otherwise stodgy policy move of the Reserve Bank of India, which is a typical serious institution, and not one that is ‘fun loving’.
‘The free lunch is over’, defying my late pointer here — a commentator who tracks the policies in duration of hours but habitually shares his opinion like the momentum of light — uttered (thankfully not lamented) on the RBI’s decision to allow the banks to hold an entire business group as ‘willful defaulter’ in case even one firm in the group defaults on loans.
This is a judicious move, and essentially deserves to be hailed since we collectively love ideas, with some or major ethical bearings. This is indeed a silent accord amongst us, and we don’t mind continuing in that intangible fraternity — even though the multiple rounds of copy-editing ensured in the Constitution over the decades couldn’t insert a few lines to acknowledge our love for being good in public glare.
Not all have had sleepless nights when we saw Mr Vijay Mallya in fanciful setting of the IPl (nauseatic for those not earning millions of cheap money out of it or who simply hate this ‘opium of masses’) and earlier on occasions when he boarded a cruise for his company’s infamous calendar suites.
Anyway, his old-days antics wouldn’t work now and he has to return over Rs7,500 crore to the banks, who surely need it more than he did in his hey reckless days of airlines business. This new law, on bankruptcy and recovery of debts will be better powered than overtly ineffective Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
This would happen with the traction of the Government’s support (aiming to bring the required legislation near the next Budget). Hopefully, we will be accustomed of living, sans the news of swapation, which presented the cases like for a handout of few lakhs, our top bankers were seen compromising with hundreds of crores of bad loans.
Those heady deals were caught, so we know about them — otherwise, intelligent people deal such matters over the weekend and find place in very rewarding oblivion. Thus, ignorance for shady deals are pervasive in India — and a Rajat Gupta born here, but he does sophisticated inside trading in the wonderland of the US only.
Although the stock exchanges produced some real hackers of money in India, we know of only a few like Harshad Mehta — so restricted is our exposure to subterfuge, alas!
The nationalised banks contributed emphatically in making banking deep-rooted in India — with channelising banking services among the people of different socio-economic strata. But somewhere with lax governing structures, these banks lost the acuity in trading with the private businesses and have paid through the nose.
Another dampening factor has been the inconsistent regulatory responses from the RBI, the Securities and Exchange Board of India and the Union Ministry of Finance in dealing with massive frauds. It is well in everyone’s cognition how Subrata Roy of Sahara evaded Sebi for many years and succeeded in getting 18 months’ time from the Supreme Court before being sent to jail.
Still the urgency is not as much it should have to recover more than Rs20, 000 crore of investors’ money from him. He has made a lot earlier to sale for rainy days — so, Tihar Jail has arranged a type of corporate corner for him to sale his hospitality business in london. Sadly, this looks like business as usual. And the cases of Ponzi schemes — Pearls Agrotech Corporation limited and Saradha were handled even more benignly. Who do we blame for thisIJ The answer cannot be candid for now.
In addressing the risk of investors in insolvent companies, the upcoming law will create a ‘bankruptcy code’ for corporate entities, which they would get in case of default. last month, the Finance Ministry formed a committee under law Secretary TK Viswanathan, and members included from the Department of Economic Affairs and Financial Services, the Ministries of Corporate Affairs, Ministry of Micro Small and Medium Enterprises, law, RBI and SEBI.
This committee will oversee the making of separate laws and reenergise the existing regulatory laws to deal sternly with bankruptcy and willful default — reportedly, a final decision on the matter will be taken by the end of this month by the Department of Economic Affairs and Financial Services. The good sign is, the regulators and various ministries are appearing in sync at the moment.
The reckoning about the issues related to unethical corporate practices is not unknown to the regulators — as they are the keen watchers of the situations. RBI Governor Raghuram Rajan has recently aired his concern on India’s outdated and non-functional bankruptcy laws, as reported by Reuters “We need a bankruptcy code...Today there’s a lot of confusion... We need that confusion to be changed”.
The will to act appears to be there too.