INSUBCONTINENT EXCLUSIVE:
Everyone is scared of someone
Bankers are reluctant to lend
The regulator is unwilling to relax the rules
The minister is hesitant to tell the regulator to change the rules
And babus, who advise the ministers, find it too hot to handle
All are praying for the court to kick the can so that they are not roasted and ridiculed by the Opposition before 2019, or years later
pulled out of retirement and put through a Spanish Inquisition by another government.
The protagonists, opponents, and the actors with bit
parts are all caught in this milieu as a highstake court drama unfolds — first, in the Allahabad High Court, a theatre of many famous
feuds, and now in the Supreme Court — over 30-odd power companies, saddled with a combined debt of more than Rupee1.5 lakh crore.
After
missing the August 27 deadline, banks have a fortnight-long window to resolve the debts — which would mean calculating the slice of debt
that is ‘sustainable’ and can be serviced by the borrowing power companies, and converting (rather, forgetting) the balance
‘unsustainable’ part.
A fortnight may be too short a time for doing the arithmetic and convincing stakeholders
Bankers will not rush through — by now, they know the price they may have to pay for such ‘undue hurry’
RBI officials will not tweak the rules that are now engraved in the February 12th directive (which requires banks to begin the bankruptcy
process if they fail to resolve NPAs by August 27)
They fear someday they could be summoned by the Central Bureau of Investigation — just as their colleagues were questioned by the agency
for modifying a circular seven years ago that gave a second chance to a troubled airline called Kingfisher
(What RBI merely did then was to extend the easier loan restructuring framework that was till then applicable for NPAs of manufacturing
companies to services like airlines).
This time, RBI has put its cards on the table of the Allahabad High Court: it’s categorical that
rules of the February circular will be slacked only if the government (the owner) directs it
While Demonetisation had demonstrated that RBI does cave in to New Delhi’s pressure, all such ‘persuasions’ have to happen before the
rules are announced and matters boil over to the court
Now, it’s too late for RBI to budge.
Any discussions on whether the government would invoke Section 7 of the RBI Act, which empowers the
former to direct the banking regulator, is academic
Has it ever been usedRupee Perhaps, the section had a significance before 1949 when RBI was a company with private shareholders who could go
against the government; it was well before monetary authorities had the aura they later acquired and the idea of the central bank’s
autonomy captured the imagination of the liberal world
In today’s time, invoking Section7 would be perceived as openly belittling RBI’s authority
Neither can the government afford such an undisguised step to force RBI nor can it furtively attempt to influence Mint Street in reviewing a
directive that would give defaulting businesses houses a lifeline
It surely doesn’t want a lately-eloquent Rahul Gandhi to once again toss the ‘suit-boot-ki-sarkar’ jibe in the run-up to the state
elections.
It’s hard to digest that finance ministry was oblivious to the RBI circular while it was in the works, though it’s entirely
plausible that men deputed by the ministry to discuss the subject had failed to grasp its wide ramifications
When they finally did, the bullet had left the gun barrel, and there was no going back for RBI.
A government that pursues reforms on
war-footing, and actually believes that the style of functioning that prevailed for the past 60 years can only be changed through shock
therapies, must be ready to bear the cost of harsh reforms
If a number of these NPAs (not just of power companies) land up before the bankruptcy court — and chances are they could —, bankers
might not lose their jobs but it could mean annoying litigations and distress sale of assets as well as huge haircuts, losses, and erosion
And when that happens, the finance minister of the day, should be ready with the cheque book to bring weary lenders back on their feet.
If
the apex court upholds the RBI directive, the financial consequences that comes with a bad handling of a difficult problem will have to be
Someone may have to pay the price
The coming months could unravel whether the power NPA mess would claim a scapegoat and who that would be!
