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FE NEWS SERVICE
After putting the screws on financial institutions to carry on funding the Essar group, the finance ministry appears to be working out similar packages for steel majors like Ispat and Mukand. Considering that the ministry considers the approach as in keeping with the BJP's manifesto, which says that the government would work closely with corporates, more such bail-outs can be expected. While there is strength in the argument that industries hit by global recession and the crash in international prices cannot be allowed to go under, a decision as to whether or not a particular project should continue to be financed should be arrived at independently by the lenders.
Government intervention in a transaction that should ideally be driven by commercial considerations is uncalled for. All the three major development financial institutions are corporate bodies owned by their shareholders. The owners of any commercial entity fund it to earn returns on their investments and would like to see their funds utilised inthe most profitable manner. As the management of such an entity functions in trust for the shareholders, it would do well to keep their interests in mind. Clearly, the decision to fund projects whose creditworthiness is suspect is driven by considerations other than the profit motive. The government in its own capacity would probably have been justified in trying to bail out beleagered industries. However, in using financial institutions to do so, it is not.
The shareholders of the financial institutions have seen the market value of their investments dip to unprecedented lows following the fears regarding the recovery of a large portion of their loans. Though their managements cannot entirely be absolved of their responsibilities, a part of the blame can justifiably be put on the government.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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