Now that banks can acquire a majority stake in troubled companies at a fair price—both RBI and Sebi have given their blessings—it should be easier for them to recover money from these firms. The strategic debt restructuring scheme, as it is called, will allow banks to move into companies far more quickly than before and ease out the promoters. As the central bank has pointed out, the new powers will enable banks to either rope in new promoters or sell the company; while it would help if the new owners didn’t have to make an open offer to minority shareholders, there should, nonetheless, be takers for assets than can be turned around. Given that assets worth several tens of thousand crore rupees and thousands of jobs can be saved if these companies are revived, Sebi might want to take a lenient view on the open offer.
Banks, for their part may be a trifle apprehensive, about being in control of a company since that is a huge responsibility. However, even if they are able to deal with a few big cases—by either bringing in new owners or disposing of the company—it should be worth the effort. It would send a strong signal to errant promoters, many of whom have been described by the authorities as ‘freeloaders’, that there is no such thing as a free lunch. More important, it would give banks the confidence to deal with weak and inefficient owners, at a time when the law is skewed heavily against banks and they are to make very little headway in the debt recovery tribunals.
If they are to be even moderately successful, however, lenders need the full backing of the government. Typically, in the past, attempts by banks to sell assets have run into problems on several counts; on a couple of occasion, the floor price fixed for the sale has leaked and lenders have been compelled to start the auction process all over again. Indeed, more often than not, banks have been thwarted in their efforts by the income tax department which claims it has the first right over the property and assets. If their attempts to dislodge promoters and revive the company are not to be frustrated, it would require some intervention by the finance ministry. The government would also need to back banks should there be any queries from the government auditor or the Central Vigilance Commission regarding the sale—under the law, PSU banks have to call for tenders, not negotiate with potential buyers which is the way most strategic sales take place. Else, no officer will be willing to even initiate the process and the objective of easing the norms would be wasted.