Wednesday, August 25, 2010

SC slams India Inc on loan default

SC slams India Inc on loan default

Indian banking system went through many trial and tribulations during eighties. After two nationalisations of banks in 1969 and 1980, they were subjected to all types of experimentation - be it in branch expansion, rural posting of Officials, directed lending, debt waivers and so on. The result of bad repayment culture because all the borrowers began thinking on easy terms and chose to become wilful defaulters. Come nineties, the first attack as part of the economic reforms was the much harrassed banks. Productivity, Profitability, Efficiency, Computerisation, Customer Orientation, Transparency of Balance Sheets, etc have taken upstage suddenly.

Thanks to the policy of LPG, the regulators defined NPAs and announced the provisioning norms. It was tightened gradually from dues of 4 quarters being NPAs in 1993 to 90 days in 2004 in a phased manner. Creation of special tribunals called DRT was partially successful during the nineties. Then came the stringent law of SARFAESI Act, 2002 after series of consultations in India and abroad. Unfortunately, Mardia Chemicals Ltd of Gujarat challenged some provisions and it took two more years to refine the Act in 2004. At last, the lender has the right to repossess the assets from a defaulter. Definitely, the bankers hands were strengthened to bring down the NPAs level from 15% of the loans in the nineties to a low level of 3% in recent times. This also conforms the requirement of recommendations of a Committee on Capital Account Convertibility headed twice by SS Tarapore, former Deputy Governor of Reserve Bank of India.

In the instant case, the defaulters appearing to be playing the same old dirty tricks of seeking protection under the prolonged legal system. Hence, the Supreme Court decision is very apt in putting to rest such dilatory tactics. Such judgements would certainly bring in a healthy credit and repayment culture in the country and help bankers to move ahead in lending to the needy borrowers liberally.

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