How to tackle serial borrowers

Deccan Chronicle,as it turns out,was a serial borrower.

Written by P Vaidyanathan Iyer | Published: September 11, 2012 1:58:50 am

Deccan Chronicle Holdings Ltd (DCHL),owned by T Venkattram Reddy,Vinayak Ravi Reddy and PK Iyer,as it turns out,was a serial borrower,at times pledging securities twice over to banks and financial institutions.

In their brief to the government,lenders say DCHL has squandered away almost Rs 5,000 crore in about 15 months without presenting the correct picture of the liabilities. What is baffling is how almost two dozen bankers got misled when Reddy’s worsening finances became common talk in Hyderabad forcing him to even pledge his super luxury cars including Ferraris,Maseratis and Rolls Royces to some of the lenders.

While rating agency CARE provided little insight into DCHL’s borrowing spree and continued to assign the company’s short-term instruments highest safety,a banker stuck with an unsecured lending over Rs 400 crore admits that part of the problem lies with the banking industry itself. Gone are the days of syndicate banking where a group of banks joined hands to lend to a company. These days of modern and fast banking has seen relatively younger banks build personal relationships with clients. So,even a Ratnakar Bank ended up giving Rs 50 crore to DCHL.

For individual borrowers,there is a strong CIBIL today. If an individual defaults,say on his credit card outstanding and doesn’t pay up,he not only loses his card,but also his creditworthiness with other bankers,because CIBIL is keeping track. Not so for corporates. There is no common registry to maintain a record of security and charge that corporates provide when they borrow funds. All it requires is a unique code for every company and look at its total debt — broken down into loans taken from various banks and financial institutions. And alongside,the directory can keep record of the security provided for the loan.

Lenders fear acute misreporting by companies,big and small. Banks have little idea of each other’s quantum and purpose of lending. In short,to protect their asset quality,they are ending up pushing their non-performing loans to other banks.

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