Sunil Kanoria, Vice-Chairman of Srei Infrastructure Finance and President of Assocham, feels that the way the non-performing asset (NPA) issues are being addressed will lead to more problems. Clean-up is necessary, but not at the cost of irreparable damages, he says. In an interview to BusinessLine , Kanoria pointed out until new laws such as the Bankruptcy Code are brought in and implemented some patience is required. Excerpts:
Your view on the way the NPA issue is being addressed...
I feel it is completely wrong, and could lead to more problems than solutions. Huge negativity has been created on NPAs and their provisioning by the government and the Reserve Bank of India.
Rather than correcting the problem from the source, they are stressing on cleaning up only. If there is a problem, it needs to be resolved in a commercial manner to save the value of an asset.
In the long run, the system will be hit. Value of businesses will come down. The damage is irreparable.
What about the trickledown impact on small businesses?
When the big falls, it will take a huge number of smaller ones (micro, small and medium enterprises) along with it. The challenge facing MSMEs is massive, and no one talks about that. If you look at the majority of the problems in an MSME, it is (delayed) payments from the government.
Look at the MSME law. If a private company does not pay to the MSME, it has to be mentioned in the annual report and interest payment on those dues provided for. But there is no penalty on the government for defaults.
The high debt-equity ratio of projects is being stated as a cause. Your comments.
Anyone who needs capital will need debt too. No business can survive with equity only. Banks never cite this as a reason for rising NPAs, In many delayed projects, money never in.
Take an example. A project is coming up and banks have given their sanction. But then the project gets stalled.
Banks would have disbursed money, and taken back the interest component. Ultimately (it led to a situation) where the debt was disbursed, interest costs were recovered, but the project was not complete. Take the Deccan Chronicle case. Of the ₹3,000 crore debt, ₹1,800 crore is interest cost.
So, I repeat, this is a systemic problem and industry cannot be made a scapegoat.
But system clean-up has to start somewhere, right?
Of course. The Bankruptcy Code is being brought in now and it is a forward-looking move. You are creating a market mechanism.
The solution, I feel, is to create a fund where banks will be investors. The fund will be managed professionally by fund managers and they can take over companies when strategic debt restructuring is opted for.
But till you create the ecosystem, you have to allow forbearance of regulations.
Forbearance of rules may benefit a select few…
I am neither saying protect the frauds and cheats, nor any individual.
But if you create such a massive fear, the rational commercial decision-making process will be stymied and people will turn risk-averse. Entrepreneurship will be impacted.
Look at the US. It allowed the failure of one Lehman Brothers, but pumped huge money into the system to protect it.
One needs to realise that there was systemic failure in the past (in India). You had poor governance, land acquisition and environment issues, judicial pronouncements which impacted the entire system, the steel issue in China, and so on.
You cannot ignore the past when looking at the future.
Do you see a situation where corporates will be hounded?
Yes. It has already started.