oppn parties Should Public Funds Be Invested To Buy Stressed Assets In The Absence Of Solid Data?

News Snippets

  • Kapil Sibal leaves Congress, fills nomination for Rajya Sabha with SPs backing
  • RBI bans 5 NBFCs as it cracks down on e-lending platforms
  • Hindustan Motors to tie-up with Peugeot to bring out a redesigned version of the iconic Ambassador
  • GST Council to defer rate rejig due to inflation
  • Centre to sell 29.5% in Hindustan Zinc at an expected price of Rs 38000cr
  • Stocks remain negative on Wednesday: Sensex loses 303 points to 53749 and Nifty 99 to 16025
  • IPL: RCB beat LSG by 14 runs and end their dream run. Rajat Patidar scores a brilliant 112. RCB will take on RR to decide who goes through to the finals
  • Delhi Additional district judge Nikhil Chopra says there is no legal right for people seeking to worship deity inside Qutab Minar, says it survived 800 years without worship so "let it survive like that"
  • Punjab chief minister Bhagwant Mann sacks state health minister Vijay Singla over corruption charges. Singla was later arrested by the ACB
  • Protestors burn the house of Andhra minister P Viswaroop and MLA Satish Kumar over renaming of Konaseema district as B R Amberdkar Konaseema
  • Gyanvapi: Varanasi district judge decides to first hear the 'maintainability' plea filed by mosque management
  • Delhivery and Venus Pipes shares list at premium of 10% and 8.7% respectively even when market sentiment was down
  • In a bid to cool edible oil prices, Centre allows duty-free imports of 20 lakh tonnes each of crude sunflower oil and crude palm oil per annum this year and next
  • Centre caps sugar exports to ensure availability of stocks in the domestic markets to cool prices
  • Stock markets get the jitters as RBI signals rate hike and government moves in to control inflation: Sensex tumbles by 236 points to 54052 and Nifty goes down by 89 points to 16125
Yasin Malik of JKLF gets two life terms in terror funding case /////// Kashmir TV artist killed and her nephew injured in a terror attack in Hushroo in Budgam district
oppn parties
Should Public Funds Be Invested To Buy Stressed Assets In The Absence Of Solid Data?

By Ashwini Agarwal

Why are banks being forced to take massive haircuts, sometimes up to 70 percent, on their stressed assets? It is because the companies they lent to have been stripped bare by unscrupulous entrepreneurs in most cases. These dishonest businessmen have siphoned off money through various means and have left little for recovery. In other cases, the cost of manufacturing was so high and the returns so low that the companies could not come out of the red even after many years of existence. It is nearly impossible to revive such companies and unlike banks, no prudent entrepreneur would be willing to throw good money after bad. The AMCs buy them at steep discounts just to sell individual assets and recover their money, with profit, of course.

Banks have reportedly put Rs 40000 crore worth of bad loans for sale to AMCs in the first half of this financial year after it was clear that delays under the IBC would make the resolution a time-consuming and costly affair. There was also the chance that if and when the resolution happened, the amount recovered (given the quantum of assets of the defaulting companies) would not be much more than what the AMCs would pay, even after the steep discount. Hence, the government has preferred to have them collect money now rather than wait interminably for the resolution.

The steep discounts on stressed assets in India are largely due to the fact that the companies going under the gavel are mostly gone cases - beyond the realm of revival, sucked dry of funds and stripped of valuable assets by dishonest promoters. As no reliable and collated data exists on the number of companies purchased by the AMCs or others and the way they shaped up after the sale, it is very difficult to say whether those who bought such assets really made a profit. They might have, because of the steep discounts at which they purchased them, but that does mean that there exists a lucrative market for such stressed assets and that windfall profits can be made.

As of now, the first requirement is to collect data on all sales of such stressed assets right down to the final disposal by the AMCs. Of course, there are some companies that were stressed due to mismanagement and these can hopefully be turned around under new management. But then the discounts for these companies would generally be much less. Hence, before committing public funds in buying out these stressed assets (as suggested by some experts), the market should be allowed to evolve and data must be obtained and collated. Otherwise, the National Pension System, the Employees Provident Fund and other funds would end up making citizens and workers poorer by taking unnecessary risks.