While there are those who believe it would have been possible to resuscitate SpiceJet, at no extraordinary cost to either the government exchequer or the banks, the speed with which the government is trying to make sure the airline changes hands, and doesn’t go belly up, is commendable. Not since the time of the Satyam Computers fraud of 2009, when the ministry of corporate affairs sprung into action setting up a core team to ensure the tech major was found a new promoter, have we seen such quick decision-making. To be sure, the government is keen to ensure the carrier survives and to safeguard as many jobs as possible; that there is a willing buyer with some financial backing, who doesn’t need to take on a mountain of debt, is making things easier.
If only the government had shown the same sense of urgency for hundreds of other companies, that have been in distress, many of them may not have gone bankrupt. Indeed, banks have lost thousands of crores simply because they were not able to address the sickness in time. Unfortunately, in India, declaring a firm bankrupt and handing it over to a buyer is so cumbersome and so vulnerable to litigation, it is not surprising banks are reluctant to even initiate the process. Indeed, recovering a few hundred crores via a Debt Recovery Tribunal (DRT) can take several years because the legal process is so time-consuming and borrowers are able to get away on the flimsiest of grounds. At the end of it all, the banks come away frustrated, with little to show for their effort, valuable assets at the price of scrap while the promoters go scot-free. Adding to the DRTs is not the solution and manning them with people who are more efficient and of integrity is probably impossible. It is the rules that need to be tightened such that banks have the upper hand and the borrowers fall in line. The country urgently needs a Chapter Eleven kind of provision, as there is in the US, so that cases are dealt with within a specified period of time and bankers are able to recover at least some of their dues.
Apart from the fact that the legal process is inefficient, bankers are also diffident about taking on promoters, because of the latter’s proximity to those in power. To that extent, the government’s pronouncements, made by the prime minister himself, that it will not interfere in the working of banks and leave them to make their own decisions is welcome. Banks need to be empowered to deal with their customers in a manner they deem fit; it is exactly this lack of power that has undermined their authority and left them defensive. The environment is changing and for the first time promoters are being declared wilful defaulters; Reserve Bank of India (RBI) is backing banks to the hilt. But unless the legislation is tightened, many more businesses, that can be revived will have to be wound down.