SBI Chairman Rajnish Kumar talks about the IBC
Former SBI chairman Rajnish Kumar talks to Tamanna Inamdar about the IBC and its many plus points, he also talked about big companies getting haircuts from the bank. Kumar also talked about giving the IBC time to flourish.
So, Harsh Goenka tweeted asking why businesses get 80-90% haircuts on their loans, but no banker will afford the common man the same cut on a home/personal loan. What are your thoughts on the matter?
On this matter, the SBI chairman further said that I’ve not read what Harsh has said, but as far as the process is concerned, IBC was introduced in November 2016; before that, the remedies available to bankers with regards to sick industries and companies were BIFR – where the existing promoters continue to get a case on the matter for years and years with no outcome- or there was DRT SARFAESI, which was not a pleasant experience for bankers.
In financial terms, it is completely incorrect to compare a business loan to a personal loan and to other categories, but I think we must address this general perception that if a business fails then the liability and pain are much less and the bank can still walk away with 60-70% of a haircut and call it a success, but if there is an inability to return a loan — especially in the context of a pandemic — taken by an individual creditor, it becomes a whole different ball game. Can you explain to us why you feel that that’s the wrong way to look at it?
Did he say that even in the case of retail creditors – like agriculture – how much loan has been paid back? Because it is not economically viable, not because farmers don’t want to pay. Because they don’t have sufficient earnings to service debt, so it is the same situation, more or less. Periodically, governments come and provide relief, manage debt.
Banking is not such a simple thing, there is a risk, there is a risk-reward matrix; that’s why there are laws around the process and companies are managed so that comparison is absolutely invalid.