Tuesday, 9 February 2016

#‎Writeoff‬ by PSU Banks.

#‎Writeoff‬ by PSU Banks. There is a lot of consternation and concern among the people, in the market and across all sections about the write off of bad debts by the PSU Banks . But most of the ire seems to be misplaced . People are pointing and rightly doing so to the corruption, inefficiency , political pressures, window dressing etc. as the reason for the rising NPA and the bad debts . Some are blaming the bank officers, some the management, government , RBI, so on and so forth . But hidden behind all the discussions , debates and breast-beating lies the ugly face of crony capitalism in India which helps to perpetuate this sort of white collared crime again and again , irrespective of the regime and the officers , under socialist or rightwing dispensation.
We must keep in mind that lending to corporate is and should be the most important function of a bank . And loans do get bad due to economic conditions, mismanagement and various other reasons . Writing off debt is also a prudent policy for any lender . There is no problem or issues in accepting these basic facts . Then what or why is the great hullaballoo about ? Plainly the concern is because of the fact that the lending banks are majorly controlled by the government and the nexus between the big businessman , political operators, government officials and a section of the bank officials is very much expected to be the reason for the NPA and subsequent writeoff. When the writeoff is made , the part of the government capital is eroded along with other stockholders . But the government can always fill its coffer by raising taxes as they are doing blatantly on petroleum products and even life saving medicines. So much for governance. Ultimately, it’s the general public who has to bear the burden of the inefficient and corrupt nexus .
But then , this is just a side of the coin . What is being conveniently sidetracked in the sound and fury is the liability of the company and the industrialists who are getting the benefit of this debt writeoff. Though the figures of the money being written off is more or less known , ten thousand crores here and there , the names of the entities who get this waiver are not being published. And these people have already siphoned money in various forms and formed trusts to take care of their
future seven generations living a luxurious life without bothering to do anything. And most of them will again open another company in some form or other. Because as we all know ,in a limited company, the debts of the company are separate from those of the shareholders. As a result, should the company experience financial distress because of normal business activity, the personal assets of share holders will not be at risk of being seized by creditors. Ownership in the limited company can be easily transferred, and many of these companies have been passed down through generations.
The structure of companies are very interesting . At least in India . A small businessman running his private business is liable to pay his dues and solely responsible for his business . But a company is not run that way. Everything about a company is to shift the responsibility and spread the risk , to the minority shareholder and the lending banks. Now as we all know , the major stakeholder in most of the Indian company is a government behemoth , namely Life Insurance Corporation of India and other mutual funds etc. The promoters and their family members often do not have even a quarter of the stocks themselves . There are nominee directors from the government agencies , lending banks, independent directors and all sort of paraphernalia which constitute the board of a company. But surprisingly no body can be pin pointed for the performance or rather the non payment of debt. This is a cosy arrangement where many retired government officials and bank officers land up cushy position and an assured stream of income in their post retirement life. More like the gubernatorial posts doled out by the government . It is actually a very vicious and incestuous circle . You will find the same names and faces on the boards of a number of companies.
A few questions that comes to mind about this issue are as  below :
1. Why should the names of companies not be put on public domain . The fig leaf of banking secrecy does not apply here because these are PSU banks . The money is of the government i.e. the people of the country.
2. Many of the promoters of these companies whose debt have been waived must be having other companies in their name . We must have information about the indebtedness of those companies too in the public domain.
3. What is the role of government nominated directors and independent directors ? What were they doing as the NPAs ballooned ? Should not these people be barred from holding a director’s position on the board of any company in future ?
But I don’t expect that there will be any of the above questions answered . Under the pretext of the laws or rather the absence of it . Capitalism is not a bad idea as long as it helps growth ; of wealth , ideas , people and the country. In the hands of oligarchs and their accomplices , it subverts the whole system and becomes the reason for catastrophe , both economic and social.

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