This refers to Indira Rajaraman's column "Transparency as cure" (Economically Speaking, September 23) where she says much of the banks' bad debt problem is primarily due to delayed project approvals. The asset quality issue is anyway understated; it is not just the non-performing assets, but also the cumulative weight of rescheduled and ever-greened debt. The writer has ignored big events like the implications of the financial crisis. Weak capital markets did not allow companies to deleverage through equity issues. There could also be cases of political pressure.
Apart from these exogenous factors, there are other powerful reasons such as promoters' ability and intentions, and the quality of monitoring and customer knowledge of the banks. Many companies took on too many projects at the same time with high project debt financing. They relied too much on straight-line financial projections packaged by big-name consulting houses, ignoring that most 5-10 year periods will have some down years. Also, unhedged forex debt and convertible bonds stumped quite a few. And in a number of cases, there were inept if not deceitful promoters. Mere delays in approval can't explain instances such as Air India, Kingfisher, Deccan Chronicle and so on.
P Datta Kolkata
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