Former RBI Governor Raghuram Rajan had said the sanctity of the debt contract was being continuously eroded.
If industrialists are expressing concern, in a meeting with the prime minister, that there is a rising perception that the entire business community is corrupt and that they are being targeted by the government, they have only themselves to blame. The story is in the numbers: Non-performing assets (NPAs) are at close to Rs 12 lakh crore, and while not all of this is due to wilful defaults by companies or siphoning off of funds, a fair share certainly is. It was not for nothing that former RBI Governor Raghuram Rajan had said the sanctity of the debt contract was being continuously eroded. Calling some of them “freeloaders’, Rajan said in November 2014 that too many of them insist on their divine right to stay in control despite their unwillingness to put in new money.
To be sure, it is wrong to paint everyone with the same brush; there are many business houses and companies that do business the right way. It is also possible they outnumber the errant borrowers. However, the manner in which events have unfolded over the past three years, ever since banks were asked to clean up their books, makes it clear that companies could have paid their dues—or at least some of it—but, chose not to. Of course, bankers must accept their share of the blame for lending recklessly, without adequate due diligence and insufficient collateral. It is also true that, in the past, big businessmen enjoyed the support of those in power and that crony capitalism flourished. But, that cannot absolve borrowers—primarily, the larger companies—of their fair share of the blame. It should, therefore, not surprise them, if they are seen as defrauding the system. The lavish lifestyles of many of these businessmen, whose companies owe banks thousands of crores, suggest they are not quite penitent.
Indeed, the government must be congratulated for having had the political will and courage to put an end to this defaulting and evergreening of accounts. Banks are now initiating insolvency proceedings against near-bankrupt companies and, probably for the first time ever, industrialists are having to let go of their businesses. It is true the process under the Insolvency and Bankruptcy Code is such that some of the assets are being sold for a song—Alok Industries, for instance, has gone to its buyers for a little over Rs 5,000 crore whereas it owed banks close to R 30,000 crore. However, allowing a defaulting promoter to get back his company after banks have taken haircuts would have created a moral hazard. What is unfortunate is that some promoters continue to believe they have a right to disrupt the insolvency proceedings by resorting to frivolous litigation. Given how most of them are looking for loopholes in the law, rather than following it, this doesn’t come as a surprise. A leopard cannot change its spots.