Business Side woes & its coverage in media
By: Amit Bhushan Date: 20th Mar. 2016
We seem to have bank defaulter's side of views coming out with the commercial news media prominently highlighting their cases. Suddenly, we are likely to be witnessing that most of these defaulters had every good intention but for the economy or sundry issues beyond the control of defaulters. Some of the views are likely to also highlight political leaders and government agencies as well as bankers, playing political double standards and making selective decisions against specific businesses.
In a way, it's good that all sides of stories should come out including the side of political leaders as well as lenders and their due diligence related defence as well as loan administration related defence, so that there is greater appreciation of the issues amongst public and these can go in deciding fate of upcoming bill and rules on the issue.Basically, the analysis of default needs to be three pronged, one of which can of course be economic conditions subject to reopening discussions on the economic data that was submitted for consideration to the then loan officers at bank, its suitability and validity etc. etc.
This is generally given a miss and only current submission is being discussed to paint a picture for public consumption. Second measure has to the adequacy of due diligence adopted while approving loans for the projects, its techno-economic feasibility studies, EQUATOR or other evaluation/due diligence procedures and its quality, if there were laxity in process vis-à-vis standard procedures that other similar proposals need to go through.
The Third is regards overall system's ability to allocate or ration credit in line with defined priorities and if there are sound guidelines that are known and followed so that overall fund allocation to industrial sectors is well balanced with sound alerting mechanisms in place.Most discussions in the commercial news media is still around accusations and counter accusations i.e. banks alleging frauds rather than coming out with a sound argument regards how such fraud was conducted i.e. breach of procedures alongside defaults. This is even as in most cases the banks may be sitting on a plethora of data to build a suitable case.
The lack of this information but media hype build pressure or gives opportunity to political leaders to take action through visible corrective measures like sealing/attaching collaterals or initiate investigations & court proceedings and hog public limelight to canvass with vote banks. Subsequent action will be for business owners to play victim card alleging witch hunt and seeking reprieve from courts or from powers that be, when the media and ballot box pressures have subsided.
Needless to say, in absence of sound data and sound case, what’s likely to be the result? What we need to be analysing about such noise of banking defaults is to begin from the basics. The banks should come up with the entire documentation giving out due diligence measures for approving credit for the projects as well as agenda for monitoring the progress of such projects, the restructuring done previously as well as commitments from developers, technical assistance/know-how providers, operating management etc. along with the role of government agencies associated with the projects. It can subsequently analyse if the lenders set aside any core lending norms for the projects unfairly or without any sound arguments.
The lack of such analysis is going to dilute the efforts and is likely to again play into the hands of promoters as well as politicians, since there is unlikelihood of any new learning coming out and therefore the system is unlikely to become any wiser. This might only be what some of the defaulters or some restructuring agencies want along with adept Netas, so that they may raise their game. A through discussion with information/data will bring forth to contrary, a host of issues with much better ability to either recover or be better prepared for the future and have much better credit allocation to the benefit of the population.