Wilful defaulters be ready to cede mgmt control: FinMin
Mumbai: The Finance Ministry on Tuesday sent out a warning to wilful defaulters that they be better prepared to lose control of their companies and prodded banks to ask defaulting companies to change management.
"People who fall into the category of wilful defaulters, I think better start getting used to the idea that you are likely to lose control and management of your company if you are going to manage it badly.
"Because it is much more than your equity which is at stake, it is the public money which is at stake,? Financial Services Secretary Rajiv Takru told the FIBAC banking summit here this evening.
Takru said: "Banks must ask the company to change the management as the company is much more important than the fellow running it."
"If you are a wilful defaulter, we cannot deprive you of your shareholding, but we can certainly insist that you take a back seat in the management...
"Half the companies are in a mess because of downright, deliberate (bad) decisions of the management. In such cases, I don't think you have any moral right to expect to continue to be allowed to make those mistakes again and again," Takru said.
It can be noted that the total restructured assets in the system crossed Rs 4 lakh crore as of the June quarter. Most of this is contributed by the state-run banks.
In FY13, banks restructured Rs 75,000 crore loans under the CDR mechanism, which was nearly double the level in the previous fiscal.
Earlier in the day, MoS for Finance Namo Narain Meena told the Rajya Sabha in a written reply said the gross total bad loans of the 26 state-run banks jumped to Rs 1.76 lakh crore as of the June quarter, from Rs 1.55 lakh crore in March quarter.
Deploring the tendency of companies taking advantage of the slowdown to misuse the debt recast mechanism, Takru said: "We are seeing more and more cases of companies taking advantage of the distress in the market.
"Trying to go into the CDR cell, trying to negotiate deals with banks, demanding moratorium on interests and lower rates are becoming very common.
"We are seeing many cases of diversion of funds from one group company to another, people changing addresses etc. This is not very good."
Takru said the banking system has been tolerant of such people in the past.
"But that's not on anymore. The money you are dealing with is the public money. I think the people who are taking loans have to understand you have to pay back," he added.