Much is being talked these days about changing the promoters of mismanaged companies. As everybody knows, however, it is practically impossible to change managements because of the clout they wield.

One way in which that clout can be lessened is if equity holdings of promoters are low. By taking over the right to transfer promoters' shares, the FIs will therefore be strengthening their position for a change in management, if necessary.

Moreover, the current recession affecting industry is the right time to go in for such changes, because corporate managements are weak and will be in no position to resist FIs' demand. For well-run corporates, the move will help them to grow through takeovers. The resulting consolidation should help industry, giving rise to scope for cutting costs and rationalisation.

The fact of the matter is that institutions are under a lot of strain as a result of the two-year long slowdown. While non-performing assets are rising, balance sheet expansion, which mitigates the effect of rising NPAs, is stalled.

Additional security therefore is the primary reason for FI's insistence on the pledge of promoters' shares, especially for those projects which are on the last leg of their implementation, and for which the FIs have no alternative but to lend. The move, however, provides an opportunity for ensuring better corporate governance.