 "S S Mundra")
Reserve Bank of India (RBI) Deputy Governor S S Mundra said even after the asset quality review (AQR) of the central bank, "challenges abound", as a vast majority of the corporates were overleveraged with severely diminished debt servicing ability.
There were projects which needed fresh capital, new management and new promoters, but banks were wary of raising their commitments to stressed accounts. Such organisations should pare their debt to a manageable level to operate profitably, he said, adding this could require new promoters. "This might involve writing down a part of the debt by the lenders and/or converting them into equity and bringing in a new promoter to run the enterprise. This might, however, be a time-consuming process and in the interim the banks may need to appoint an O & M (operation and management) agent to run the operations," Mundra said in his speech at the Edelweiss Credit Conclave on Thursday.
A major impediment observed in joint lending forum mechanism was slow evolution of consensus among the consortium members and, hence, the resultant action plan gets delayed invariably. "The delay somehow defeats the very purpose for which the JLF mechanism is set up," he said.
There were talks about setting up an investment fund, where banks can dilute their shareholding of truncated enterprises, but the question remained "who would fund this investment fund? My sense is it would have to be joint endeavour of multiple players in this arena. Moreover, extending financial support would not be sufficient. Such fund would also need to have capability to provide management bandwidth to the concerned projects," Mundra added.
