Our Decrepit Debt Recovery System

A consolidation of laws and legal processes is called for at the earliest

India’s debt recovery apparatus is an alarming mess. Consider this: we have four Acts, two sets of tribunals, ₹2 trillion worth of debt recovery tribunal (DRT) cases and ₹6 trillion in NPAs. These NPAs are a subject of labyrinthine discussions, appraisals and reappraisals – carried out by the RBI, Finance Ministry and even TV channels. None of all this seems to be getting us anywhere.

To get a fix on the debt problem, we need to understand the tangle of laws dealing with it and the system of courts and tribunals responsible for the implementation of these laws. The four Acts in question are: Sick Industrial Companies Act, 1985 (Act 1 of 1986), Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFA), 1993, The SICA Repeal Act, 2003, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act (Sarfaesi), 2002.

Apart from Debt Recovery Tribunals we also have the National Company Law Tribunal under Companies Act (Second Amendment) 2002 to settle BIFR cases.

NPAs - the perpetrators go scot free

If the RBI and MoF representatives on the Boards of Banks had prevented approvals of some corporate loans and brought collective wisdom to do due diligence, NPAs would not have reached the current unsustaining levels. Otherwise, how could one explain the debacle like that of King Fisher sanctioned on the basis of Brand as collateral thousands of crores on the instance of the then Chairman of the SBI. And this Chairman goes scot free royal. The successors have to cool their heels. 

It is important that the regulators get out of Boards of PSBs. Government of India, as owner, would do well to provide equity and discipline by sending more qualified representatives on the PSB boards and not the persons who are trying to learn the alphabets of banking. By being in the MoF for donkey years does not make one an expert in banking and finance!!

This is my response to Mrs Usha Thorat's article on the subject in Live Mint dated 15th july 2015.

Limited Liability Partnership no good for banks

Last six months have been harrowing for a few SMEs who registered as Limited Liability Partnerships with the hope that they would sail more comfortably in their financials with equity and debt in good balance. But all of them faced the wall when they approached the financing banks for working capital loan. They advised these entrepreneurs to convert into private limited companies or partnership companies where the liability is not limited.

You can find the edited version of the article in the Hindu Business Line of 17th July.

No liability this: http://www.thehindubusinessline.com/opinion/columns/no-liability-this/article7430264.ece

Banks threatened with huge NPAs

There is a report in First Line that a Collector from Amravati threatened action against bankers for not reaching agricultural loan targets in a quarter under IPC. This is sheer arrogance on the part of the District Collector who does not know his job. There is another report of the UBS on the mounting NPAs in the Live Mint of 7th July 2015. Reading together becomes necessary.

UBS Report has been contested by 'Yes Bank.' while the other banks chose to ignore. The fact remains that the corporate debt today occupies major portfolio of banks. There is excessive interference from the administration in public sector banks.

Take for instance, the story of Maharashtra Government where one of the district collectors audaciously threatened the banks for not achieving the targets in farm lending as per his dictate just a couple of days ago. The news appeared in First Line. The banks in the coordination forums - District level Consultative Committees of which the Collector/DM is the chairman, have never pulled up the district administration for failing to provide reliable land records, for failing to provide the credit related infrastructure for farm schemes to succeed and they mention in their Annual Credit Plans and NABARD in its PLP for the administration to respond adequately. The Administration never adequately responded.

When the 20-point programme was introduced initially, District Collector, Guntur reacted similar to that of Maharashtra District Collector threatening with criminal action for failing to reach the targets under the programme in 1979. The entire banking community walked out of the DCC asking the Collector to go ahead. The then Secretary Planning Govt of AP had to counsel the Collector to behave!!

Thanks to the Live Mint for the chart.

Such interferences do not mean so much as unseating the top executives for not lending to the corporates or for taking any action on the NPAs of delinquent corporates that today reached unsustaining levels. The action on the top executives range from transfer from the portfolio handling to transfer out of place. These are taken without demur as no person would like to be at the risk of his career. The obliging top executives and Chairmen get the plum posts. Such games from the Banking Department should stop. Narasimham Committee -1 recommended in 1991 in its maiden report itself, that the time had come for the banking department of the GoI be wound up and stop regulating banks. This recommendation should be revisited by the GoI in the interest of healthy reforms to the financial sector. .

Slashing Centrally Sponsored Schemes

Different states have different poverty levels. Prudence and diligence in spending on social sector schemes would emerge with the centre taking minimum share and allowing states to carve out their budgets in a manner that their poorer citizens require. 

One thing that baffles me is the enormity of social expenditure budgets by states like Andhra Pradesh and Telangana with the percentage of poor in total population in the range of 10-12 percent spending more than 50 percent of their budget on populist schemes. They are not focusing even at that expenditure levels on giving free education to the poor by improving infrastructure in all the government schools on a mission mode and providing health care at the door step by improving the primary health care centres in villages.

Small, marginal farmers and lease holders should get protection from the wild market fluctuations through price buffering, beyond the horticulture crops.

Growth of the economy at 8%?

250mn poor of India are being ruled by over 500 crorepatis in the Parliament and thousands of such legislators in states. Arvind Panagariya, Vice Chairman NITI AAYOG would like to believe that the growth of the economy would hit 8% by the end of this year.

AGriculture with its 13.7% share in GDP providing sustenance to about 50% of population still is posing risks to growth. So is the MSME sector, not still the darling of credit agencies. Exports did not rise significantly during the first quarter.

One consolation is that on the external front we seem to be doing fine.Watch this in the backdrop of one week's closure of Greece Banking and Stock Markets.


 In fact, while one would very much like to be optimistic, the dreams of make in India being still in the dark, uncertainties on the farm front, manufacturing yet to gain, the buoyancy of tax collections still to surface, the sovereign debt continuing to rise, and the hidden inflation at embarrassing level, the hope of 8% for 2015-16 that too from the Aayog Vice Chairman is really fond. Adding fuel to fire is the current Greek Debt Crisis impacting on our engineering exports and rising exports is the hope of Arvind Panagariya.

Still too many go hungry

http://www.thehindubusinessline.com/opinion/still-too-many-going-hungry/article7322506.ece

Despite the high growth years, malnourishment stalks the countryside. This calls for a small-farmer led focus

At a time when India’s GDP growth is hopefully pitched at 7.5 per cent this fiscal, touted to be higher than China’s, three global reports of significance also grabbed the headlines: The Global Findex Data Base 2014, The Global Food Policy Report of the UN and the State of Food Insecurity in the World, 2014.

Ahead of all these, the IMF and the World Economic Forum reported that 25 per cent of India’s population still remains poor.

The Global Findex Data measured the financial inclusion around the world. The other two reports dealt with the food insecurity and the measures to tackle them.

It must be remembered that the data is mostly up to March 2014. The findings are of great import to this government for designing policies tackling financial inclusion, hunger and malnutrition.

The government would like to measure the poor by the JAM method — Jan Dhan account, Aadhaar, and the mobile. It has been acknowledged universally that there were no deaths due to hunger. But the farmers who produced food committed suicide were burdened by excessive debt.

The undernourished poor, like the Jan Dhan accounts, showed an impressive decline in the reports and these are counted once every three years.

A range of indicators can be used to measure a nation’s food security. These include average dietary energy and protein supply, access in terms of road and rail line density, domestic food price index, prevalence of under-nourishment, stability measured in terms of cereal import dependence ratio, political stability as well as absence of violence and terrorism, undernourished children below five years, anaemia among pregnant women, and vitamin A and iodine deficiency in the population.

Measuring insecurity

Malnutrition is redefined to include obesity and overweight. In India, child stunting (under five years) is 47.5 per cent while undernourishment is 15.2 per cent; whereas overweight population is 11 per cent. The country witnessed an average GDP growth of 8.7 per cent in 2003-08, 6.7 per cent in 2008-09, followed by 8.6 per cent and 9.3 per cent in the next two years.

When the growth of GDP was high and food inflation was also high, there was a decline in the percentage of under-nourished population.

Health insurance

Whose health are we insuring? thehindubusinessline.com · The new health savings plan appears more advantageous to insurers and agents than consumers My comments as posted in the article:

Insurance industry in this country is just evolving. Neither the operators nor regulators nor the insured know the intricacies in full. Not that I also know something great. All I know is the risks attached to insurance are far different and have varying dimensions across ages and sex. Premium as the insurance companies say is measured by the risk associated. So as one ages, the risks become larger and therefore, the premium is charged higher equivalent to an ageing automobile. Women become more vulnerable to certain health problems far different from after a particular age - say 40-45years. Both men and women while they are earning more could be charged higher premium for insuring risks to cover those that become larger when they age or when they retire and for women after 45 years. The moment one says he is insured in a corporate hospital, the list of tests become longer; charges become hefty to take the maximum in the insurance pie. This exploitation should be stopped by IRDA.