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Bogus Restructuring

Even though India faces a deluge of giant/shocking bank frauds and rampant wilful defaults in loan repayments, yet, even in the best of situations, the most bonafide and well considered banking decisions granting loans, can go awry. That is a normal banking industry risk. Nobody is competent to predict the future and wholly unforeseen events can derail the most experienced banking decisions. In such genuine situations, where there was simply no intent to defraud and the loan default was for utterly bonafide reasons, it is not appropriate to trigger coercive recovery or liquidation process immediately, merely because the borrower has defaulted. It needs support from banks, by way of careful restructuring of the bank loan. It is a process, where the rate of interest could be reduced and the loan repayment tenure is extended, to match the borrower’s cashflow and repayment ability. This is done, in the larger interests of the lender as well as the borrower, because if it is not done in deserving cases, the borrower’s business will close down and losses to the lender are imminent.

It is with this intent that the Corporate Debt Restructuring (CDR) cell was set up under the directions of the RBI, with a mandate to restructure deserving bank loans, where the borrower is viable and the default is for bonafide reasons. The CDR Cell thus did start with a good intent, where the senior bankers restructured loan defaults, with their collective wisdom. But the system degenerated thereafter. The bankers and the borrowers started merrily misusing the restructuring facility under the CDR. Bankers did so, (despite being aware at times that the default was wilful, or the unit was not viable), only to postpone the inevitable, i.e. the recognition of bad loan losses on their books of account. It suited both, the banker and the borrower, unmindful of the fact that the bank books were being resultantly manipulated, and they were deliberately hiding the real state of affairs of the banks and their delinquent borrowers. The senior most bankers were directly involved in perpetrating these shady and scammy restructuring practices, to make the bad loans look good and avoid the recognition of losses by banks on this account.

This questionable restructuring also delayed the initiation of any corrective action, as also criminal action against the erring banker/borrower duo and only aggravated the banking crisis. A stitch in time would have saved nine, but here stitches were put only to conceal the tear/tatters in the fabric of the Indian banking industry. Not surprisingly, about 80% of cases restructured by the CDR Cell failed and ultimately turned bad, which they anyway were. The fact is that the entire restructuring under the CDR Cell was a deliberate sham and it was failed to doom at the very inception. The CDR Cell presently lies exposed, with little activity and perhaps awaits closure by the RBI, having failed because of willing collusion by the delinquent borrowers, and the reckless / corrupt bankers. ')}

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