By Tarun Kumar G. Singhal
Raman Jokhakar Chartered Accountants
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The Supreme Court (SC) has asked India’s central bank, the Reserve Bank of India (RBI), to hand over a list of all companies that owe more than Rs 500 crore to (mainly) state-owned banks, but whose promoters continue to live, well, in some comfort. The second criterion is dicey, since what constitutes high living tends to be subjective, but it should be an easy matter for the RBI to hand over a list of the major defaulters. Since taking over in 2013, RBI governor Raghuram Rajan has been fighting a lonely battle to get banks to clean up their books, seize assets of habitual defaulters and impose some discipline in the country’s moth-eaten lending system. The SC order strengthens his hand in the fight to break the cronyism between bankers and promoters. This is welcome.
The court can reveal the names handed over by the RBI. Naming and shaming might achieve results that gentle nudges have failed to deliver. However, such a list of names would contain the names of both those who wilfully borrowed too much to achieve too little and defaulted in desultory impunity and those who fell to unanticipated political risk that compounded normal business risk in the period of policy paralysis after a former telecom secretary was sent to jail in 2011. The point, really, is to reform banking as practised in the public sector, redeem banking decisions from political/bureaucratic interference. That, in turn, calls for overhauling political funding to make it transparent and free of the proceeds of corruption, besides overhaul of ownership and control. The malaise in banking has its roots in our political economy.
Rajan’s job would have been simpler had he been armed with a modern bankruptcy law similar to the US’. Yet, parliamentary logjam has thwarted India’s new bankruptcy code, which could permit swift resolution of bad loans. The government must prioritise this as the number one item on its legislative agenda and get it passed in the Budget session. Of course, for this, it would need to engage the Opposition, instead of calling it antinational and other names. (Source: Editorial in The Economic Times dated 19-02-2016.)
