In the business milieu of the present times and even before that, since the seeds of business and knowledge would have started germinating in our minds, the French proverb, ‘Rome was not built in a day,’ came across our minds umpteen number of times for some or the other reason. Any company or institution, for that matter, fits in this proverb. It is the hard work and tireless effort of many which give shape to a company and so it is equally painful for all to see that establishment falling through. The banking community, as the lender has been extending financial support to such enterprising minds to fulfil their intention of building up an organisation. Throughout these years, the banks take winding-up as the last option and try to see that the genuine borrowers are supported through their tough times. However, there have been instances in the recent past where the intent becomes questionable and raises doubts on the working of the company/s.
This reminds of the famous quote of Benjamin Franklin, which says ‘Beware of little expenses; a small leak will sink a great ship.’ In the credit default cases which have been seen now, there have instances of a big leak in the form of operational gaps, functional mismanagement, financial misappropriation or others.
The initiatives taken up by the regulator towards loan resolution have been many in the past with a not so encouraging success rate. Though the details on the schemes have been mentioned time, and again, one of the speeches of RBI Deputy Governor N S Vishwanathan, at NIBM captures the things quite emphatically. He said that, the CDR mechanism, which was put in place in August 2001 for restructuring of debt without the need for an asset quality downgrade if the restructuring plan met certain conditions worked well initially, but in later years, its asset quality forbearance was used more as a tool for avoiding recognition of non-performance of stressed assets and less for their effective resolution.
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