Promoters who dishonour the loan restructuring pact with banks and willful defaulters should not be shown any leniency and must be asked to give up control of their companies and surrender their entire equity in them, if possible, according to financial services secretary Rajiv Takru. In an exclusive interview to Arun S, Takru responded to questions on a range of issues. Excerpts.
What action is being considered against promoters not sticking to the terms and conditions of the loan restructuring agreement?
A promoter who has messed up the project must not be allowed to hold on to his equity and keep putting the entire stress on the banking system. What is happening now is that if the project recovers, the promoter's equity is there, but if it doesn't, the entire hit is taken by the banks. This canít be allowed to continue. So, in such cases, the promoter must take a hit, bring in more equity besides surrendering some equity to the financial institutions.
Will it be made mandatory for promoters to pledge with banks a specified minimum percentage of the equity that they are holding in the company for loans to be restructured?
We donít have in mind any specific percentage of equity that the promoter must surrender. In fact, we are asking why such promoters must retain any equity at all. The government (being the owner of public sector banks) and the RBI governor (Raghuram Rajan) have said that if banks are putting any money into the project and the promoter is messing it up, we have to go for a management change.
The promoter can retain some equity if he wants, but, certainly, he canít have a controlling equity in such cases. If you mess up the project, you can forget about control.
Recently, the government announced that it has, in principle, agreed to sufficiently enhance the capital to be infused into PSBs. Would this reduce the cost of funds for banks sufficiently to enable them to extend loans at lower interest rates to consumers of two-wheelers and consumer durables?
Data show that demand is a bit slack in certain manufacturing sectors. Through this additional capital infusion, we want to create a multiplier effect. This is the season when you normally have peak demand. When we identified sectors such as two-wheelers and consumer durables, banks were told to consider how to stimulate demand there. Towards that, banks