12.20 ndian onom
Unlike the SDR arrangement, this involves no (ii) It is an economic problem, not a morality
change in the ownership of the company. play. Diversion of funds (wilful defaults)
have undoubtedly been one reason behind
PuBlIc sector asset rehaBIlItatIon non-payment of the debts. But a large
agency (Para) number of loan defaults have been caused
by unexpected changes in the economic
To resolve the twin problems of ‘balance sheet environment—timetables, exchange
syndrome’ (of the banks as well as the corporate rates, and growth rate assumptions going
sector), the Economic Survey 2016-17 has wrong.
suggested the Government to set up a public (iii) The stressed debt is heavily concentrated in
sector asset rehabilitation agency (PARA)—charged large companies. This is an opportunity,
with the largest and most complex cases of the because TBS could be overcome by
‘syndrome’. Such initiatives were successfully solving a relatively small number of cases.
able to handle the ‘twin balance sheet’ (TBS) But it presents an even bigger challenge,
problems in the countries hit by the South East because large cases are inherently difficult
Currency Crises of mid-1990s. As per the Survey, to resolve.
the Agency charged with working out the largest (iv) Many of these companies are unviable
and most complex cases. Such an approach could at current levels of debt requiring debt
eliminate most of the obstacles currently plaguing write-downs in many case. Cash flows in
loan resolution. the large stressed companies have been
coordination problem as in this case, the deteriorating over the past few years, to
debts would be centralised in one agency; the point where debt reductions of more
it could be set up with proper incentives by than 50 per cent will often be needed
giving it an explicit mandate to maximize to restore viability. The only alternative
recoveries within a defined time period; would be to convert debt to equity, take
and over the companies, and then sell them at
it would separate the loan resolution
process from concerns about bank capital. (v) Banks are finding it difficult to resolve these
cases, despite a proliferation of schemes to
The Survey has outlined seven reasons
help them. Among other issues, they
in support of its suggestion for setting up the
face severe coordination problems, since
PARA—which are as given below34:
large debtors have many creditors, with
(i) It’s not just about banks, it’s a lot about different interests. If PSBs grant large
companies. So far, the NPAs issues debt reductions, this could attract the
revolved around the capital of the bank attention of the investigative agencies.
and how to fund them so that they start But taking over large companies will be
giving loans again. But more important politically difficult, as well.
issue is to find out a way to resolve the (vi) Delay is costly. Since banks can’t resolve
NPAs created by the corporate houses (as the big cases, they have simply refinanced
why they are stressed). the debtors—deteriorating the situation.
34. Economic Survey 2016-17, Government of India, But this is costly for the government,
Ministry of Finance, N. Delhi, Vol. 1, p. 85. because it means the bad debts keep rising,