I have seen, met, and done some business with many promoters and many bankers. When Raghuram Rajan makes the right noises about NPA reduction, it sounds good. However, at 53 years of age you turn cynical and skeptical about the whole process of bank lending, collections, and monitoring the loan.
A real big promoter comes to the bank just to take a loan. Once the formalities are over it is the employee who deals with the officers of the lending institution. The entrepreneur comes in a cycle to take a loan, but comes in a Merc to tell the lending institution that he cannot repay the loan. As long as the loan is being serviced and the installments being paid neither the bank nor the lending institutions bother about the client, his business or what he does with the money. However if there is some delay the institution wakes up.
If you have done audits in your life, you pick the illness signals pretty fast. It is very sad and almost shocking that many of our bankers do not pick the illness signals. Promoters use the money to invest in mutual funds, in debt schemes, use working capital to fund assets, create JVs without adequate working capital, – and the banker sits through all this. The board members are worse. One promoter tells me about an institutional nominee – “Of course Subra he opens his mouth, he has to eat the sandwich”. So if institutional directors do not even open their mouth, are willing to grovel when they are asked to bow, do not take the trouble to understand the business – honestly what better performance do you expect?
On the other hand I know one independent director who is quite a terror -he is completely ready with his home work, meets the executives privately (paying for the hotel bills himself, paying for the indemnity insurance himself too!). I know that once he commissioned an independent agency to do some work on behalf of the company, but did not inform the company till the work was over. He gets a sitting fee of about Rs. 25Lakhs – and I think he deserves every rupee.
The promoter has a net worth of Rs. 20 crores (at least) and he comes to meet the officer who has a salary of Rs. 8Lakhs after 20 years service. There is no way a banker can be abusive or tell him “Look you #$%^& pay up the money or I will take you to the cleaners”. I have seen entrepreneurs who have a JV with a more aggressive (and cheating) businessmen struggling to deal with the thieving promoter. In one case we would train, coach, encourage, an entrepreneur outside the door of the board meeting…but he would chicken out inside. I have seen brilliant bankers who would call entrepreneurs ‘tum to chor ho’ – to a guy one’s fathers age…but Mr. Gupta (I think he was in IDBI in the 1980s)..were an exception. Most businessmen can brow beat the banker.
We need lots of changes. So Raghuram Rajan will make noises, grab TRP, impress the kids in college but some of us are too sure that nothing much will change. Alas.
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