The RCom mess

With reference to the Editorial ‘Cross connections’ (March 20), the RCom controversy has once again shattered investors’ trust as the valuation of the company plummets further. Despite its technological leverage and standardised optical network, RCom went bankrupt due to its financial mismanagement and reduced operational efficiency.

While RJio has made rapid strides in only three years, RCom piled up lenders’ liabilities. The lengthy and cumbersome insolvency proceedings are on. The future of the telecom sector depends on the lenders including banks which must ensure: customers relationship management, transparency in operations, financial prudence, disclosure of operational decisions, investors funds management, democratic decision making and proper valuation before taking any lending decision to this sector.

With reference to the report ‘NCLAT accepts RBI request..... IL&FS case’ (March 20), a parallel can be drawn to the ‘stay’ of legal proceedings given by Board for Industrial and Financial Reconstruction (BIFR) in a number of bank loan cases, when Sick Industrial and Reconstruction Act (SICA 1985) was in force. Even corporates, who were subsequently declared as wilful defaulters, managed to cover themselves under ‘sick industry’ definition and obtain stay from BIFR to delay the legal/recovery proceedings indefinitely.

The IBC’s main aim is ‘resolution in time’, which is why the financial/operational creditor/entity itself gets the right to initiate proceedings under the Act, even on occurrence of one event of default. While the operational creditor may exercise the right depending on its perception to eventual repayment possibilities, the financial creditor, especially bankers, proceeds under IBC only when the loan faces the danger of being classified as NPA.

Urgency on the part of financial creditors to find a resolution or rehabilitation of the corporate under stress, might be lost, if the asset classification norms stipulated by the RBI are deferred. Hence the NCLAT’s direction to all banks to not to declare the accounts of IL&FS as NPA without getting its approval is debatable. The RBI’s decision to request for its inclusion as a party respondent in the case appears right in the given circumstances.

Coimbatore

The ongoing acquisition power struggle between L&T and Mindtree is creating ripples in the M&A business with no clear cut resolution visible for now. While one entity aims to consolidate its position in the IT sector, the other fears losing its identity on which its large client base relies on. Ultimately it is the wisdom of shareholders that should prevail. Mindtree’s fears of losing its core employees are real and its promoters must come up with a better counter offer to stave off L&T’s takeover bid.

Bengaluru

Unsurprisingly, the poll manifestos of the two major Dravidian parties in Tamil Nadu have slew of populist measures and schemes to woo voters. Promises to waive off farm loans and educational loans are not pragmatic given their ramifications on the already strained state exchequer. That the promise of waiving farm loans has become a popular narrative/promise of parties across the political spectrum to reap electoral dividends is indeed disheartening as it hardly addresses the ills afflicting the farm sector.

Though Tamil Nadu has made rapid strides in human development over the years and remains one of the highly urbanised and industrialised States, the freebie culture being perpetuated by the two major Dravidian parties have only wreaked a havoc on its economy. Measures aimed at uplifting the poor are imperative but freebie culture with its resultant catastrophic effect on state exchequer and should be kept at bay.

Sholavandan (TN)

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