The Campaign on Stressed Assets

The Campaign on Stressed Assets​

By: Amit Bhushan Date: 3rd April 2018

There seems to be a sustained campaign in select news media regards public policy on Stressed Assets in particular for Banking sector in India. The design goes as defining objectives of the policy by making bold statements like maximizing value at which these assets should transfer hands. This is then used as a basis to put forth arguments and benefits, to set the course of directions which the authors of those articles desire to pursue. The ‘Game’ is played by selective definition of the problem including possible solution, though with a sound theoretical reasoning post such foundation. Much of the energy is spent in arguing for the current owners be allowed to ‘bid’ for resolution of such assets and how it would ‘maximize’ the ‘salvage value’ for the institutions in distress viz. the banks.

At the heart of public policy is not just benefits of some institutional players, but how it overall would tend to impact the society. The Laws & Rules also have a deterrence aspect in mind rather than just the ‘salvage value’ maximization aspect 'for owners like PSU banks, which have failed to improve procedures/processes' and post some event or loss having already been registered. The ‘deterrence’ is needed not only for the ‘business/industrial players’ but also for the ‘errant bankers’ as well. If a ‘loss’ is going to be registered in the banking books, suitable questions are bound to be asked and required amendments be incorporated in procedures. Currently the practice is ‘Chalta Hai’ in practice, though there may be quite a lot on the ‘books’ for procedural formalities. Of course in such a scenario, the ‘relationships’ matter most and this seems to being protected and canvassed for.

On the side of businesses, should they ‘know’ that they won’t hold on to these assets for eternity unless having paid back the banks/lenders, ‘risky’ bets would continue to be made and ‘relationships’ would continue to be stressed upon rather than ‘performance’ of the businesses. So the public policy is needed again to emphasize the deterrence role, rather than just focus on the ‘incidental salvage value’, which basically presages a loss having been already occurred. We again need to make ‘bank credit’ more wide spread rather than concentrated over ‘a few relationships’, and a suitable deterrence in policy to de-hyphenate from ‘relationships’ to building appropriate structures and procedures for the same.

It should be noted that currently what’s seems happening is the businesses/manufacturers who can borrow easily, flood the dealerships/markets with their widgets on easy credit which is then used to push product to retailers/consumers. The dealerships of other manufacturers’ starts to demand similar credit terms, and the smaller manufacturers simply perish. Already, there are questions some new FMCG that has cornered a rather large market-share I a rather short-while, even if this may not be entirely credit-driven. However easy credit to a few players, not only yields lop-sided high risk credit environment, but also disturbs competition in markets. This is thus a double whammy for public, by robbing them of more choice and using their money in an unsafe banking.

Greater competition is also what yields better products, competitive prices, better services, more innovation amongst other benefits like higher employment. In fact political Netas and parties have stayed away from such debates and have largely failed to hold a clear position for the fear that it would impact their maneuverability in any post electoral scenario, where such businesses may be able to call shots. In absence of such open debates public is expected to make choice basis its understanding and expectations from the Netas it chooses to vote, including some idea about past and current performance over the issue. This remains so even with some ‘tough questions/game politics’ being played out, as most Netas would either have things to hide or not wanting to spill the beans and the commercial news media’s focus would be to discuss the sundry rather than the ‘meaty portions’ of the issue. Let the ‘Game’ evolve…

 

[Priyani Gupta]

The Campaign on Stressed Assets​

By: Amit Bhushan Date: 3rd April 2018

There seems to be a sustained campaign in select news media regards public policy on Stressed Assets in particular for Banking sector in India. The design goes as defining objectives of the policy by making bold statements like maximizing value at which these assets should transfer hands. This is then used as a basis to put forth arguments and benefits, to set the course of directions which the authors of those articles desire to pursue. The ‘Game’ is played by selective definition of the problem including possible solution, though with a sound theoretical reasoning post such foundation. Much of the energy is spent in arguing for the current owners be allowed to ‘bid’ for resolution of such assets and how it would ‘maximize’ the ‘salvage value’ for the institutions in distress viz. the banks.

At the heart of public policy is not just benefits of some institutional players, but how it overall would tend to impact the society. The Laws & Rules also have a deterrence aspect in mind rather than just the ‘salvage value’ maximization aspect 'for owners like PSU banks, which have failed to improve procedures/processes' and post some event or loss having already been registered. The ‘deterrence’ is needed not only for the ‘business/industrial players’ but also for the ‘errant bankers’ as well. If a ‘loss’ is going to be registered in the banking books, suitable questions are bound to be asked and required amendments be incorporated in procedures. Currently the practice is ‘Chalta Hai’ in practice, though there may be quite a lot on the ‘books’ for procedural formalities. Of course in such a scenario, the ‘relationships’ matter most and this seems to being protected and canvassed for.

On the side of businesses, should they ‘know’ that they won’t hold on to these assets for eternity unless having paid back the banks/lenders, ‘risky’ bets would continue to be made and ‘relationships’ would continue to be stressed upon rather than ‘performance’ of the businesses. So the public policy is needed again to emphasize the deterrence role, rather than just focus on the ‘incidental salvage value’, which basically presages a loss having been already occurred. We again need to make ‘bank credit’ more wide spread rather than concentrated over ‘a few relationships’, and a suitable deterrence in policy to de-hyphenate from ‘relationships’ to building appropriate structures and procedures for the same.

It should be noted that currently what’s seems happening is the businesses/manufacturers who can borrow easily, flood the dealerships/markets with their widgets on easy credit which is then used to push product to retailers/consumers. The dealerships of other manufacturers’ starts to demand similar credit terms, and the smaller manufacturers simply perish. Already, there are questions some new FMCG that has cornered a rather large market-share I a rather short-while, even if this may not be entirely credit-driven. However easy credit to a few players, not only yields lop-sided high risk credit environment, but also disturbs competition in markets. This is thus a double whammy for public, by robbing them of more choice and using their money in an unsafe banking.

Greater competition is also what yields better products, competitive prices, better services, more innovation amongst other benefits like higher employment. In fact political Netas and parties have stayed away from such debates and have largely failed to hold a clear position for the fear that it would impact their maneuverability in any post electoral scenario, where such businesses may be able to call shots. In absence of such open debates public is expected to make choice basis its understanding and expectations from the Netas it chooses to vote, including some idea about past and current performance over the issue. This remains so even with some ‘tough questions/game politics’ being played out, as most Netas would either have things to hide or not wanting to spill the beans and the commercial news media’s focus would be to discuss the sundry rather than the ‘meaty portions’ of the issue. Let the ‘Game’ evolve…

The article presented raises some important, though somewhat provocative, concerns regarding the narrative being built around public policy on stressed assets in the Indian banking sector. While the theoretical reasoning behind salvaging value from bad loans appears sound on the surface, your article appropriately calls attention to deeper systemic flaws that are often overlooked in mainstream discourse. This response aims to offer a logical, practical, appreciative yet slightly critical perspective to enrich the conversation further.


First, the appreciation: the article thoughtfully critiques the one-dimensional narrative being promoted—maximization of ‘salvage value’—which, while seemingly logical, ignores the broader implications of such policy frameworks. In democratic policy-making, the primary concern should be the public interest, not just the rescue of institutional balance sheets. Your emphasis on the need for deterrence in policy—not merely fiscal rescue—resonates with both economic prudence and social accountability.


Your argument that bad loan resolution must not be shaped to reward or recycle errant promoters is extremely valid. Allowing defaulting business owners a second chance to reclaim assets via bidding creates moral hazard and sets a dangerous precedent. It sends a signal that relationships with banks matter more than sound business ethics and financial discipline.


Moreover, the issue of internal inefficiencies within banks, particularly PSUs, is well observed. A banking culture built on “chalta hai” must give way to rigorous procedural checks, transparent due diligence, and genuine accountability—not only for borrowers but also for decision-makers within banks. Procedural formalities on paper cannot substitute for a culture of professionalism and consequence.


On the critical side, while your piece rightly calls out the selective reasoning in media and policymaking, it could benefit from a more solution-oriented tone. For instance, advocating for a broader-based credit distribution, stricter borrower scrutiny, and independent oversight bodies would offer constructive alternatives. A nuanced discussion on asset reconstruction companies (ARCs), bad banks, or how the IBC (Insolvency and Bankruptcy Code) might be further reformed could ground the critique in practical policy evolution.


The mention of credit flow imbalance favoring larger businesses, thereby pushing out smaller players, adds another layer to your argument. Easy credit to a few giants not only risks NPA concentration but also distorts competition. This leads to monopolistic tendencies that hurt consumers and destroy entrepreneurial diversity.


However, implying a deliberate media campaign or political silence, though understandable from a skeptical viewpoint, borders on conspiratorial unless more direct evidence is cited. While it is true that political parties often avoid taking strong stances on economic regulations that affect corporate interests, one must also consider the complexity of policy communication and electoral compulsions.


Finally, your call for public awareness and more meaningful political debate is spot-on. A well-informed electorate is a critical prerequisite for functional democracy and sustainable economic reform. Without public scrutiny, policies will continue to be hijacked by narrow interests, hidden behind glossy economic jargon.


In sum, this is a well-argued, bold article that raises uncomfortable but necessary questions. Moving forward, complementing the critique with viable policy pathways will make the argument more potent and impactful.





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