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Scrutiny
  
Let’s take over Rashtrapati Bhavan!
The Indian Finance Minister’s demand that promoters should be brought to task if the company goes sick, goes against basic tenets of capitalism and should not be entertained at all; as all it would do is to dissuade any foreign investor from investing in Indian companies
30/05/2013

It’s been a while that our economy’s frenetic growth has hit a series of speed bumps, slowing down our once envious run. One of them has been the alarming rise in gross Non Performing Assets (NPAs) of government-owned banks. Out of a total 40 listed banks, 16 have reported more than a 50% jump in their net NPAs between March and December 2012. According to NPAsource.com, an online portal, the net NPAs of State Bank of India, Punjab National Bank and Bank of Baroda rose by 60.4%, 70.3% and 117.9% respectively in this period. Similarly, gross NPAs of government-owned banks have risen to Rs.1.55 trillion as of December 2012 from Rs.710.80 billion in March 2011. This means that 4.18% of total loan advances by public sector banks have turned bad.

Concerned at rising bad loans of banks amid a slowing economy, Finance Minister P. Chidambaram recently demanded. “We cannot have an affluent promoter and a sick company. Promoters must bring in money.... We wish banks take firm steps to recover NPAs.” The FM’s straight talk was obviously directed at the big corporate borrowers who have defaulted on their payment commitments. Industry sources say that Kingfisher Airlines, Deccan Chronicle, Suzlon Energy, Hotel Leela Venture, Bharti Shipyard, ICSA India Ltd, Moser Baer, Koutons Retail Ltd and Lakhani Footwear are some of the major defaulters. Vijay Mallya’s cash strapped Kingfisher Airline alone owes Rs.70 billion to a consortium of banks, which have already declared the loan an NPA.

Unfortunately, the Finance Minister’s demand, although glorious in the socialist context, goes completely against basic tenets of capitalism that insulate shareholders and promoters from the vagaries of losses of their companies. In case of losses to any company, shareholders are limited by the value of their shareholding in the company. This rule is a pillar of capitalism and any clarion call to change this will only lead to foreign investors immediately shying away from investing in Indian companies. Truly, why doesn’t the FM attach Rashtrapati Bhavan to recover losses of Air India, our worst run PSU.

By:- Amir Hossain
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