Ashok Lavasa: on why bankers have been bullish on lending to risky projects, not on finding solutions

Union finance secretary Ashok Lavasa. (PIB)

A good banker can smell a bad loan and therefore bankers today need to introspect if excessive lending has taken place in the past, Union finance secretary Ashok Lavasa said on Tuesday. “One has to see why bankers have been bullish on lending to risky projects and why they have not been bullish on finding solutions. Bankers have to introspect if excessive lending has taken place and whether the entrepreneur has borrowed more than needed for the project,” he said.

Lavasa was speaking at a meet organised by the National Institute of Bank Management (NIBM) in Pune on Insolvency and Bankruptcy Code 2016.

“If you look at the macro economics of the Indian economy you will find that by any parameter that you may adopt, the macro economic fundamentals are very strong, whether you take the balance of payments, current account deficit, the way inflation has shaped in the last two to three years, the Indian government has managed its fiscal deficit and revenue deficit well. Yet today there are questions being raised, concerns being raised on why the Indian economy is not growing faster. It is like an individual whose blood pressure is normal, pulse rate is good heart is sound and yet it is not able to run or sprint the way it should, or match up to the expectations of the people within the country and outside,” he said.

One of the reasons being cited, according to Lavasa, is the low credit off take and the consequent slowdown in the participation of the private sector in the process of economic growth. “If you look at various indices of competition in the world whether it is ease of doing business, by and large the process has to be more dynamic more fast and it has to create an eco-system in which people are not able to destroy the system or are able to take advantage of the law and use them for vested interests,” he said.

“In the last few years, the government has taken several steps in which policies have been created, institutions have been established, made amendments to the law, and one of the issues has been addressing the issue of insolvency. In India it is easier to start something but it is harder to exit once you have met with failure or things don’t turn out the way it should. In this context the insolvency code and bankruptcy law has been recognized by the world as a positive step taken by the government,” he said, adding that the Indian Bankruptcy Code has turned one year old.

According to Lavasa, the government created many policies in the past, some of which succeeded and some did not. “Remember when the borrower becomes a defaulter, the burden shifts to the bank,” he said.

He cited the exampled of the BIFR and the Sick Industries Companies Act where once the promoter took the BIFR route.

“Nobody could deal with it in a satisfactory manner. The Indian Bankruptcy Code is solution oriented and there is a time frame of 180 days plus 90 days extended in which all parties have to find a solution,” he

pointed out.