TRENDS

Rs 1.1 lakh Crore Recovery from Loan Defaulters – What it Tells About Government’s Fight Against Crony Capitalism?

At a time when the opposition is raising a tirade against the government based on the unfound allegation of crony capitalism, a contrary trend has emerged, where the defaulting companies have been clearing their dues fearing stern action from the government.

On October 1, 2018, the Times of India carried the following headline:

Companies pay up Rs 1.1 lakh crore for fear of insolvency action.”

It is the Insolvency and Bankruptcy Code brought by the Modi government that is helping the creditors led by the banks to recover the money from loan defaulters. Earlier the companies used either their clouts or the time-consuming legal process to stay away from paying their dues. Now, because of a stricter law in place, the trend has changed as reflected in the above news item and IBBI newsletter April-June 2018. Both these reports put together, present the following picture:

  • An amount of Rs 1.1 lakh crore recovered from loan defaulters who were earlier unwilling to clear dues
  • 977 corporates have been admitted into the resolution process
  • An amount of Rs 1.8 lakh crore aimed to recover from loan defaulters this fiscal year, which is around two-and-a-half times the amount recovered in 2017-18
  • It is the apparent unmindful borrowing under the UPA regime that resulted in the accumulation of bad debts. The total amount loaned by the banking sector was Rs. 18 lakh crores in first 60 years whereas, under the UPA government (2008-2014), the total disbursement stood at Rs. 52 lakh crores.
How Crony Capitalism is being Dealt With

An example can illustrate how the National Company Law Tribunal (NCLT) is going about fulfilling the duty of amount recovery without any fear or favour. A media report from 2016 informs that certain Vindhyavasini Group’s promoters are “non-traceable”. More importantly, the report mentions that this group has not filed its balance sheet since 2001.

This group, like many others, may have gone about business as usual despite defaulting in loans, if not for the Modi government’s Insolvency and Bankruptcy Code.

But now what happened to this group? According to the Insolvency and Bankruptcy Board of India (IBBI) document the group ended up in liquidation.

On top of it, see a media report to understand how the ‘non-traceable’ members, in this case, have faced the heat. While giving green signal to liquidation, NCLT also ordered to sell the personal property of one of its directors to enhance the liquidation value.

Thus, the scene is clear. The previous UPA government at the centre had created the bad loan problem and acted as if the problem doesn’t exist. This government has recognised the problem and as seen in the above case, a specific mechanism has been set up in place to recover the money. The reported Rs 1.1 lakh crore pay up by the companies evidently happened because the government of the day with the proper legislative tools has paved the way to set examples like above.

Previous Instances

Previously in our article, Is Modi Government Pro-Big Business?, we have listed out how some big companies have been selling their assets to comply with the law. Here we recall some examples which show how some of the big corporate companies have been forced to sell their assets after the Insolvency and Bankruptcy Code came into force:

  1. Binami Cement, a consortium led by Dalmia Bharat Ltd being sold. Value: About Rs 63.5 billion (Source)
  2. Anil Ambani’s Reliance communication. Total assets for sale: Rs 60,000 crore (Source)
  3. Bankruptcy procedure in place against Ruia’s Essar Group (Shashi and Ravi Ruia)
  4. The Adani Group was seeking to sell its stake in the Abbott Point coal mines, port and rail projects. Total assets for sale: Rs 6,000 crore.

There are many more such examples you can find in our article Is Modi Government Pro-Big Business?.

In another recent article, Debt, Recovery and ‘Suit-Boot’ Rhetoric – The Facts Are Here, we further documented how the many big corporate companies have been facing the law under the Insolvency and Bankruptcy Code. We recall some of the media report snapshots, which themselves tell a story of bad debt recovery.

 

Conclusion

It has been becoming clearer and clearer that while the previous government was responsible for the bad loan problems accumulated over the years, the present government has been cleaning the mess and the results are showing. Going by these developments, we can surely hope that corporate accountability is only going to improve in the coming days. The crony capitalism evolved during the previous regime is breathing its last breath.