India’s curious inflexibility in trying to fix its bad loan crisis is leading to unforeseen problems

India’s crackdown on companies that have defaulted on loan repayments is reshaping the country’s economy in fundamental ways. As the first three articles in this series detailed, competitive advantage is being tilted towards larger firms because only a handful of buyers is picking up most of the insolvent firms on sale. Between the resulting consolidation and the fact that most of these firms are changing hands at low rates, existing companies will struggle to compete. In addition, regional companies are being pushed into businesses beyond their core strengths.

These processes have been in motion since January 2016, when India’s banks, prompted by the Bharatiya Janata Party-led government and the Reserve Bank of India, started taking defaulting firms to the National Company Law Tribunal in an attempt to recover outstanding loans.

These structural transformations have been caused by the curious inflexibility that characterises India’s insolvency proceedings, which place the blame for bankruptcy entirely on the firm’s promoters, experts said. “The government is not making any concessions,” complained the chief financial officer of a steel plant in Chhattisgarh which has slipped into insolvency proceedings. “It is just putting the project up for sale.”

Inflexibility also shows in how these distressed projects are being rehabilitated. This is obvious from the way the proceedings have unfolded for a thermal power plant set up some 10 years ago by a well-regarded business group in North India. The group’s chief financial officer, who is in his mid-50s, said in his 35-year career, he has never seen anything similar to India’s bankruptcy proceedings that his unit is now facing.

We have the fourth — and concluding — part of our series on India’s insolvency proceedings out today. The first part, to recap, had flagged some curious patterns showing up as companies change hands to argue we need to pay more attention to these proceedings.  The second looked at the handful of buyers picking up most of these stranded assets. The third looked at what this means for local capital as global capital (and big capital) comes in.  Today’s piece builds on those observations, using them to point out the self-damaging inflexibility that characterises India’s insolvency proceedings, tries to understand its origins, asks if there was a better way to handle all this, and then ends.

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India’s proceedings to recover bad debt are reshaping Chhattisgarh’s economy – and politics too

A baton is changing hands in Chhattisgarh.

Big companies are entering the state’s steel and power sector, using India’s ongoing insolvency proceedings to buy distressed firms. At the same time, Chhattisgarh’s local steel makers, several of whom entered the power sector in the mid-2000s, are looking beyond these two sectors.

Part Three of our series looks at how NCLT will affect the provincial business classes of India — as the buyers detailed in Part Two come in.

As India tackles its bad loans problem, large local groups and global funds are gaining advantage

By March, seven companies had evinced interest in buying Lanco Infratech.

The company began life in 1986 as a construction contractor, but grew into a power and infrastructure behemoth after liberalisation. Much of this growth was funded by bank loans. In June 2017, after missing its loan repayments, the company found itself on the Reserve Bank of India’s first list of defaulting companies that would have to face insolvency proceedings. At the time, Lanco Infratech owed Rs 45,200 crore to banks and another Rs 5,300 crore to its business partners.

The list of companies that queued up to buy the infrastructure firm was intriguing. There were seven large bidders, four of them from outside India. They operated in disparate fields from international finance and energy to mining and real estate.

Lanco Infratech illustrates a broad pattern that is becoming apparent as India’s National Company Law Tribunal tries to recover bad loans from companies. The tribunal is selling these companies in whole or auctioning off their parts. Alongside, some companies are making their own attempts to reduce debt by selling off some of their units. Through this process, a small group of Indian and foreign companies are taking most of the assets on sale.

Out today, the second part of our series on India’s hugely important insolvency series. This one looks at the folks buying up stranded assets in india.


India’s bid to fix bad loan crisis is reshaping its corporate sector – and creating new challenges

After a long break, I finally — and rather sulkily — resumed work in the middle of August. Out today, the first of my trademark long-winded and tremendously depressing series: on how India’s business insolvency cases are coming along. The series — it is a four-parter — essentially argues that India needs to pay far closer attention to how these insolvency cases are faring, that these are taking the country into uncharted waters. For more, click here.


How palm oil from Malaysia fired the Patel agitation in Gujarat

Dhirubhai is in dire straits. He can no longer recover his investments on the groundnuts he grows on three acres of land along the Junagadh-Verawal road in Gujarat.

In a good year, he grows 100 kilos of groundnuts – or peanuts – for every Rs 4,000 he invests. The minimum support price – or the price at which the government buys the crop – is Rs 4,400. But the middle-aged farmer said government officials buy only from “vyapari aur mota rajkarmi” (traders and big farmers). Smaller farmers like him sell to private oil mills at very low rates. Last year, he got just Rs 3,500 for every 100 kilos of groundnuts – lower than both his investment and the minimum support price.

Blame it on rising edible oil imports — especially palm oil. And therein hangs a story. Do read.

Why does the IAS Association defend HC Gupta but not Ashok Khemka?

Our second piece on this ghastly caterwauling over ex-coal secy HC Gupta.

The fervent defence of former Coal Secretary HC Gupta seems to be taking India into dangerous waters.

India’s Prevention Of Corruption Act, 1988 should be amended, wrote Partha Sen Sharma, a serving Indian Administrative Service officer in The Times Of India on Tuesday, to “make it mandatory to prove pecuniary benefit to a civil servant before he can be implicated in criminal liability”.

Sharma is not the first person to articulate this demand. In the last two weeks, ever since the former coal secretary HC Gupta, currently under trial for his role in the captive coal block allocation scam, told the special CBI court that he wanted to withdraw his personal bond due to financial difficulties, a clutch of serving and retired IAS officials have said that a quid pro quo – a favour or advantage granted in return for something – needs to be established before a bureaucrat can be put up on trial.

Take former cabinet secretary BK Chaturvedi. In a column titled “Civil Servants Bear The Brunt Of Corrupt Governance”, a sentiment that India’s poorer millions would probably have sharp words about, Chaturvedi wrote: “Unless there is clear proof of mala fide decisions made by the officers and clear benefit received by them, criminality cannot be assigned.”

These are problematic suggestions. If accepted, they will result in a dramatic reduction of the bureaucracy’s accountability to the rest of the country.

What the people defending former coal secretary HC Gupta are not telling you

Last week, former Coal Secretary HC Gupta surprised everyone in the Central Bureau of Investigation Court. He intended to “face trial from inside the jail” and withdraw the personal bond he had submitted in order to obtain bail, he told Special Judge Bharat Parashar. Gupta is an accused in several coal block allocation cases relating to corruption. On being asked why, Gupta said he was in financial difficulties, struggling to even engage a lawyer.

The news triggered a minor furore – especially amongst the bureaucracy. The IAS Association announced it would meet Prime Minister Narendra Modi and Law Minister Ravi Shankar Prasad to communicate, as the Indian Express said, the duress officers will be “under if “honest decisions” are construed as mala fide.” “There can be errors of judgement in the course of work,” said secretary of the Association, Sanjay Bhoosreddy. “But that does not mean there is any criminal intent or quid pro quo.” Subsequently, news reports and op-eds – like this and this and this – also warned that the court’s decision to charge Gupta might paralyse the bureaucracy.

On the whole, it seems that both the IAS Association and the people defending Gupta need refresher courses in both accountability and the captive coal block allocation scam.

while in ET, my friends john samuel raja, avinash singh and i had taken a close look at the coal scam. it was educative then. and it is educative now. at that time, we got to see some of the processes damaging india up close. right now, it is a window seat to a different process — on the contest between those wanting to deliver justice and those trying to thwart it.