Page 246 - A Banker Down the Rabbit Hole

decision taken today may prove wrong later due to entry of more players
creating excess capacity that may result into all the players losing and
not making intended profits in that business. There are cases where
borrowers are financially sound and have reserves to meet such a
situation and keep growing.

There are only a minority of borrowers who have short term objective
of raising money and diverting it to their personal family accounts and
vanish. There are many customers who want to do business and repay
but default gets beyond their control. There are borrowers who are
honest as long as bank funds are at stake. When they find the going
getting tough, they divert funds to their personal assets and declare
bankruptcy to avoid loan liability. The bankers come across all sorts of
borrowers but that happens after the loans are granted.

During the appraisal process, the banks want to check on the people
behind the project along with the long term viability and profitability of
the business. Majority of the customers sincerely want to continue doing
business and expand their business with help of bank funds. It is a
minority that makes lenders very careful, skeptic and apprehensive while
appraising loans and taking whatever possible measures not only to
secure the bank from losses but also to safeguard their job, career
prospects and harassment of investigating agencies like the Central
Vigilance Commission (CVC) and the CBI.

Insights from the episode

1. Anything can happen in business when scenarios turn out to be
different than projected.

2. The state of mental depression has its serious consequences.

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