Former State Bank of India (SBI) chairman Arundhati Bhattacharya has said the issue of moral hazard was an important issue in the context of the resolution under the IBC (Insolvency and Bankruptcy Code), recently amended to bar promoters from bidding for their assets. Bhattacharya said if promoters were allowed to regularise their accounts and bid, it would make them wilful defaulters. “If they can bring in the money now, it means they had the means, so why did they not bring it in earlier?” “What is the moral hazard? It is that the same people who could not run a company, for whatever reason, would get it at a much lower price. The hazard is that others, who may not have the problem, would deliberately do things so that they can pare their debt and come back. It is because of this moral hazard that the Ordinance has been brought in,” Bhattacharya said at a panel discussion at the FE Best Banks Awards.
Sajjan Jindal, chairman, JSW, said, “Worldwide promoters are allowed to bid if they are not wilful defaulters. In our context, I felt somebody borrows and for either his fault or some circumstances, is not able to fulfil his obligation. And if he then buys the asset for half the value, I don’t think we are setting the right standards. I felt that if somebody is paying every rupee back to banks and if his competitor gets a 50% discount, the first person feels cheated. Then he will say that I will go to NCLT and get a 50% discount,” Jindal observed.
Jindal observed that while there was talk of promoters trying to bid through a new face with the intention of coming back later, it would not work. “Too many regulations will create problems. But if the government makes it clear that a promoter cannot come back by using a different face now, I don’t think that will work,” Jindal said.
UTI managing director Leo Puri said he understood the optics of allowing defaulters to come back after a huge haircut, but the alternative wasn’t without its political fallout either. If many of India’s big companies went into foreign hands, he asserted, this would also be a political issue. The plan also opened up India to vulture capital.