> (Left to right) Rajesh Mokashi (Deputy Managing Director, CARE Ratings), Sudhir Variyar (MD, Multiples Alternate Asset Management), M K Datar (Senior Advisor, IBA), AmitabhSinha (Director (Finance and Investment) SME Chamber of India), Eshwar Karra (CEO, Phoenix ARC) and S Sridhar, Chairman (IIFL & Former CMD,Central Bank of India).

> (Left to right) Rajat Bahl (Director, Financial Sector, CRISILRatings), M R Umarji (Chief Adviser (Legal),Indian Banks’ Association), Mohit Saraf (Senior Partner, Luthra &Luthra), CA Sanjay Khemani (Chairman, Audit Committee, ARCIL) and Sharad Bhatia (Advisor-Stressed Assets & Former President, Axis Bank)

PANEL 2: If one looks at the term NPA man-agement, most of the problem lies inan asset becoming an NPA. Can theroot cause of NPA be nipped in thebud? Is there scope for innovationwhen money is lent to the borrower?Post the loan being given, is there achance of monitoring if the credit isas good as the time it is given? This iswhere the challenge lies and whereNPA management truly rests.

PANEL 3: The bottomline is banks aren’t in thebusiness of trust, they have to dotheir due diligence. However, the im-portant issue is that the legal systemdoesn’t work. India is placed 137thout of 180 countries when it comesto solving corporate insolvency, so itis very important that the law andpolicy statement should show thatborrowers have to pay the loans off.That hasn’t happened yet and it isnecessary that it does.

RELIEVING STRESSED ASSETSTHE EXPERTS IN ATTENDANCESPOKE OF THE CHALLENGES INTURNING AROUND STRESSEDASSETS>> It goes without saying that NPAswarrant urgent action, but there is nomagical panacea at hand for banks tomake things better. Data as recent asMarch shows that the total assets ofARCs at the end of March were Rs.6,920crore, a mere fraction of the number ofgross non-performing assets (NPAs),which are more than Rs.3.3 trillion.

There’s a tendency among banks towithdraw support once an account isclassified as an NPA, but the purpose ofclassification should not be to stigma-tize accounts. Banks should make a dis-tinction between wilful defaulters andthose defaulting due to circumstancesbeyond their control.

As a solution, banks are looking toturn things around through CorporateDebt Restructuring (CDR). However, itmust be said that the focus is more onproviding a short-term fix for borrowers

rather than making a concerted effort toactually revive businesses.

It is no surprise then to see that all ef-forts carried out under the aegis of cor-porate debt restructuring have met withlimited success in reviving NPAs,and this can be put down to amultitude of reasons, such aspoor evaluation of business via-bility, lack of effective monitor-ing, lack of proactive credit riskmanagement practices like an-nual or half yearly audits, peri-odic visits of plant and businessand analysis of troubled busi-ness accounts..

It is also worth noting thatwhile the recovery of assets is abanks responsibility, they arenot equipped with the meansto manage recoveries and this iswhere Asset ReconstructionCompanies (ARCs) can play avital role. Additionally, the intro-duction of bankruptcy laws canhelp enable more professionalrecoveries.

It is the Bull in the China shop that every-one wants to lasso and control, but noone seems to be able to. And until such

time as it is reigned, it will con-tinue to wreak havoc.

Much akin to deadweight,NPAs (Non-Performing Assets)are a cause of serious concernfor businesses. Stalled proj-ects, delayed policy decisions, economicslowdown and several macro and microfactors related to the supply & demand andmismanagement of funds have been thecauses for the same.

Needless to say, a high level of NPAs canbe a serious drag on the overall perform-ance of an economy as their management

and financial resources are di-verted towards the recovery.The Economic Times ReMod-el in India Asset Reconstruc-tion & NPA ManagementSummit looked to focus on

understanding the causes and implicationsof NPAs, examine the challenges faced bythe lending companies and set a frame-work for possible solutions to ensure a ro-bust economy.

LEADERS’ CORNER

> (Left to right) Nikhil Shah (MD, Alvarez & Marsal), Dr M G Vaidyan (DMD, Stressed Asset Management Group, State Bank of India), Rakesh Sethi (ED, Union Bank of India), Sanjay Jain (President & COO, ARCIL) and Siby Antony(CEO, Edelweiss Asset Reconstruction Company)

REBUILDING FINANCIAL HEALTHCONSIDERING THE ENORMOUS SIZE OF THE INDIAN FINANCIAL INDUSTRY, THIS MASSIVE INCREASE IN ITSNPAS (NON-PERFORMING ASSETS) IS A CAUSE OF SERIOUS CONCERN. THE ECONOMIC TIMES REMODEL ININDIA SUMMIT LOOKED AT WAYS TO REVITALIZE DISTRESSED COMPANIES AND TURN THEM AROUND INTOPROFIT-MAKING ENTITIES THAT CONTRIBUTE TO OUR ECONOMY.

“This is a time whengovernment, regula-tors, banks and ARCsmust come togetherand see how we cancome to a solution thatsees ARCs take NPAsoff the banks books,turning NPAs withturnaround potentialinto a viable asset, thus

contributing to the economy.”

BIRENDRA KUMAR, MD& CEO, IARC

“There are some basicproblems with the waybanks in India deliverand appraise credit es-pecially with regards tofinancing through cashcredit against inventoryand receivables. We arereviewing each processvery closely with a viewto perfecting the credit

process end to end. We are trying to use IT andanalytics to sense the early warning signals andthen take corrective action from there.”

DR M G VAIDYAN, DMD, Stressed AssetManagement Group, State Bank of India

“The selection of bor-rower, i.e. proper KYCidentification of theproject and its viabilityare the key issueswhich should get dueimportance while con-sidering a loan. If thisissue is ignored or notproperly complied with,it is more likely that the

accounts will come under stress. Although therole of ARCs in reduction of NPA is quite vital, itis imperative that the assets are sold at the rightvalue and at the right time.”

RAKESH SETHI, Executive Director, UnionBank of India

“Resolution, revival andreconstruction shouldbe the business Mantrafor ARC. This business isa partnership betweenbanks and ARC, wherebanks are major benefi-ciary and where ARC in-vests fresh capital andcommits more. Beingthe major beneficiary,

banks need to evolve a mechanism wherebyminimum working capital support is madeavailable for expeditious revival.”

SIBY ANTONY, MD and CEO, Edelweiss ARC

“Our system is operating in such away that it is difficult to decide if thesecurity declared by the borrower isactually available or not. The wholesystem works on trust. The way NPAsare happening in the system, there isa clear breach of trust by borrowers.”

M R UMARJI, Chief Adviser (Legal), Indian Banks’ Association “What we see is ahands-off approachonce the money is given.There is no investmentinto the relationship at alender-borrower level.Once an entrepreneur ispushed into a corner, hetakes bigger risks. Thushe needs more coun-selling and through that

NPAs can be avoided.”

AMITABH SINHA, Director, (Finance andInvestment), SME Chamber of India

“Clearly, NPAs andstressed assets aresomething affecting theIndian economy, withstressed assets in theIndian banking systemhave increased to an all-time high during the lastfew years. I believe thatsteps are being taken toimprove the situation,

but whatever happens is going to take time.”

“There’s a tendencyamong banks to with-draw support once anaccount is classified asan NPA. The purpose ofclassification shouldnot be to stigmatize ac-counts. Banks shouldmake a distinction be-tween wilful defaultersand those defaulting

due to circumstances beyond their control.”

NIKHIL SHAH, MD, Alvarez & Marsal

R GANDHI, Deputy Governor, Reserve Bankof India

“Asset reconstructionand NPA managementare of vital importancefor countries’ bankingsystems and in thelong-run, the stability ofa country’s financialsystem and its contribu-tion to economicgrowth. Sweden and In-dia are part of the glob-

alized financial system and we are all vulnera-ble to external and domestic shocks. To preventa lending boom to burst into a crisis a good reg-ulatory framework is key.

FREDRIKA ORNBRANT, Consul General ofSweden

MANAGING NPAS BETTERHOW DOES ONE BETTER MANAGETHE GROWING NUMBER OFNPAS? THE EXPERTS CHIMED INWITH THEIR THOUGHTS>> If one looks at the term NPA man-agement, most of the problem lies inan asset becoming an NPA. The ques-tion has to be asked, can the root causeof NPA be nipped in the bud? Whenmoney is lent to the borrower, is therescope for innovation there through bet-ter analysis of credit worthiness? Fur-thermore, post the loan being given, isthere a chance of monitoring if thecredit is as good as the time it is given?This is where the challenge lies andwhere NPA management truly rests.

NPA is a complex problem becauseof macroeconomic, industry and firm

specific issues. Having the RBI set sec-toral limits for lending might not actu-ally be feasible as a solution, but whatof those loans that go bad? The solu-tion does not lie in simply saying thatall defaulters should not be eligible foranother loan. The core issue should beanalysing why loans go bad andwhether provision of another loanwould help the cause on a case to casebasis. After all, what’s good for thegoose might not always be good for thegander.

Most importantly though, there is of-ten no investment into the relationshipat a lender-borrower level. Once an en-trepreneur is pushed into a corner, hetakes bigger risks. Thus he needs morecounselling and through that NPAs canbe avoided.

AN ET EDGE INITIATIVEwww.et-remodelinindia.com/

PREVENTION IS BETTER THAN CURETAKING PREVENTIVE MEASURES CANHELP SET THE FOUNDATIONS FOREFFECTIVE CREDIT RISK MANAGEMENT>> It has to be said that the RBI has been try-ing its utmost to help transfer the risk off thebanks’ books. The RBI can certainly play a cen-tral role in clamping down on defaulting com-panies, especially those that are counted aswilful defaulters. Even when dealing with co-operative management, swift decision makingcan go a long way towards setting businesseson the road to revival.

It must also be remembered that banks arenot in the business of trust. They have to dotheir due diligence, but they must also knowthat they have the fallback of a robust legal sys-tem if needed. India is placed 137th out of 180countries when it comes to solving corporateinsolvency, so the law doesn’t work for banks.

What will change going forward is very im-portant since the law and policy statementshould show that borrowers have to pay theloans off. That hasn’t happened yet.

If anyone gets a free ride, whether it’s a bor-rower or ARC, it becomes an issue. Making surethat secured and unsecured creditors interestsare looked after is very important. What weneed is a structural reform, and the sooner it iswith us, the better it is.

Bankers, by force of habit, are all about thenumbers and they often get carried away byeye-catching parameters, such as profitability.However, a good level of due diligence is al-ways prudent. There is a need to trust and ver-ify everything. In god we might trust, but foreverything else there is data. If we can do thesechecks and be vigilant, we can be optimistic ofmanaging the number of NPAs present in Indiain a better manner.

>> As the world awakens from the slumberof the Global Financial Crisis that transpiredin the 21st century’s first decade, there isgreater introspection around the health ofthe Indian economy. Credit growth is one ofthe essential elements that can drive thegrowth of the economy, and although astrong and sustainable credit growth iscrucial for a healthy and profitable assetcreation, there are certain dangers thatcome from creating stressed assets.

The Economic Times ReModel in IndiaSummit sought to shine a light on this issueand bring together Asset ReconstructionCompanies (ARCs), Private Equity Investors,credit assessment companies, legal expertsand financial institutions in order to createan environment that not only helps unlockthe unutilized potential of companies, butalso helps arrive upon alternate businessmodels for business. Through it, we believewe can reinvent and revitalize businesses,making them worthy contributors to India’ssuccess story.

Reported by Karan Karayi: Karan.Karayi@timesgroup.com

ET Edge - SPEAK:DEEPAK LAMBA, PRESIDENT, TIMES CONFERENCES LIMITED