Page 20 - Intl. Review (Draft 1.3)

SHIVAJI INTERNATIONAL REVIEW

momentary redressal, devoid of delay in payments thanks to the that perpetuates this mess.
overarching themes. overall externalities surrounding
Covid restrictions. I. Strategic Debt Restruc-
F. Asset Reconstruction turing, 2015
Companies, 2002 & 1991 Nevertheless, there is Quite simply the conver-
The most defining axis of strong hope for ARC sector sion of debt into equity for lend-
NPA resolution undoubtedly rests consolidation with the shifting ers to levy their loans in the form
with the ARCs. Idealized with of more prerogative to take on of equity shares in the borrowing
the 1991 Narasimhan Committee, equity in the long-term and have company. Intrinsically linked to
and incepted with the SARFAE- a say in future management of JLFs (Joint Lenders Forum).
SI Act of 2002 (ARCIL), crafted stressed firms, if only. But with j. Sustainable Structuring
with the idea of allowing banks the resolution process strongly of Stressed Assets, S4A, 2016
to focus on their lending forte simplified by IBC and the NCLTs An extension to the pre-
whilst offloading the debt-re- on the way, ARCs might just pull vious ideas expressed by SDRs,
covery part to private special- their weight. the S4A framework allowed for
ists. The history of ARCs in India slightly more advance opera-
meanwhile, has been relative- G. Credit Information tions on debt conversion, allow-
ly young. Nevertheless, they’ve Bureau (CIBIL), 2004 ing for convertible debentures
made strides in debt resolution Brainchild of the Siddiqui as well as allowing the existing
particularly after IBC empower- Committee of 2000, it keeps a promoters to continue minority
ment in 2016. knowledge repository of credit management, effectively giving
history of its participants. A cru- the stressed firms a make-over
The biggest thorn in the cial plug in the credit machine, it rather than a wash-over.
ARCs business practice has enables lenders a better picture
been regulatory overreach mit- of their borrowers, with around K. Asset Quality Review
igating any substantial stake. 600 Million individuals and 32 (AQR), 2015 / The big whip.
It prevented them from turning Million business covered under With growing notions of
around businesses to sustain- its radar. critically destabilizing ever-
able profitability as ARCs were greening, RBI cracked down with
legally required to hand-over H. 5/25 Rule, 2014 its thunderous interventionism
management back to the origi- The notorious poster boy of in the books of all Scheduled
nal promoters once enough col- “kicking the can down the road”, Commercial Banks to unearth
lateral reconstruction had been the 5/25 restructuring scheme the carpeted troves of precari-
done to meet debt repayments. allowed amortisation to be ex- ous forbearance.
So, in effect, ARCs were left tend across a 25-year period Financial inspections of
holding the bag on debt, while with adjusted interest rates at this nature usually are nothing
the assets went back to the every 5-year mark. It ensured out the ordinary, in fact RBI’s An-
distressed companies. Leaving better liquidity through stan- nual Financial Inspective (AFI)
little onus for ARCs to look any- dardisation of seemingly bad is a fairly routine tool of exam-
where beyond the short-term loans thereby cutting into provi- ining the structural underbelly
turnarounds of liquidation. The sioning, however, all that at the of bank’s dealings. With small
effect of which clearly stands cost of long-term interest spikes, samples of asset classes exam-
out in the diminishing recoveries burdening borrowers deeper in ined to verify veracious viability,
plummeting year-on-year from the red in the name of a tempo- ensuring repayments are in line
FY12 highs of 72% of all secu- ral quick fix. And cornering lend- with loan classification. Howev-
rity receipts, down to 18.7% and ers to “evergreen” loans, thus er, following a lengthy stretch of
9.5% in FY17 & FY18 respective- elongating the vicious cycle of dubious dealings and statistical
ly. Amounting to a mere 5% in bad indebtedness, an exacer- anomalies, RBI sought to pop the
the NPA ocean, hardly scratch- bation. And as 2017’s Econom- hood. With a mid-2015 shock-
ing the surface. The pandemic ic Survey put it, “This in turn has and-awe inspection (between
further drove the nails on their aggravated the initial problem”. August-November), they went
ongoing flailing throttle with a A succinct conclusion illustrative deep into the cesspool of debt
sharp drop in bidders as well as of the kind of shoddy foresight forbearances uncovering a fatal

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