Jose Thomas

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BANKING CHALLENGES
Friday 16th September, 2011



     

 

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Dear Friends
As you can see, these days I have started to write about my concerns on the 'Challenges of doing businesses in India'. There are positive and negative aspects in doing business in India and we have to address both of these.

As I grew up, I have on several occasions had to run from pillar to post to obtain approvals, sanctions, bank loans and many other needs. The banking system has since changed. In 1994, while I went through the worst financial crisis, I would hold discussions with my bankers and explain my difficulties. If one had the power of convincing the bank (which I had); one could get full assistance and support. Moreover, those days senior officers had vested power to make ‘on the spot’ decisions. It is not the case today. Those days, banks were more lenient and considerate in solving the borrowers’ problems. As decisions were based on credit history and track record, the number of years in business along with reasonable financial health. But today, it has become so impersonal and decisions are based purely on ratios and numbers. The financial weakness of a balance sheet can be detrimental for a small entrepreneur to do business. This will have serious impact on small and medium scale enterprises. The Managing Directors and Chairmen of banks don’t have the individual powers to sanction a loan. It is a Credit Committee that consists of bank officers who takes the call. I personally feel this is a very mechanical approach.

Branch Managers don’t have the opportunity to represent the borrowers’ needs to superior officers. Today all proposals are submitted, discussed and decisions are made via video conferencing, etc. I am not advocating that banks must simply lend without a care. No, I don’t mean that.

When one needs to borrow funds, which is a must for any business enterprise, the proposal is given to a committee consisting of a few members who haven’t seen the borrower and I even doubt, know the track history and family background (which used to be considered in the past), and if your numbers do not match those threshold levels fixed by the bank, you get a “NO” from this committee.

In a situation like this, how do you do business? Large business houses in India, yes, they get what they want. This is what I know of. Sometimes banks put in good money on weak balance sheets because they have already taken high exposure. To keep their assets in good order, they keep funding those borrowers further. Similar treatment is not meted out to in the case of small and medium businesses. If a small enterprise runs into a problem, it is given a time frame within which to settle the dues, failing which legal proceedings will commence. Inevitably these small businesses would have pledged most of their assets including their own homes to the banks. Under today’s legal frame work, the bank can recover their loans by selling the collateral within a short period of time, based on the documents that were signed while borrowing the money. It generally takes less than six months to lose your home and assets that were pledged.

In the 90’s when my company was almost declared bankrupt, my bankers stepped in and helped me. Without that help, I wouldn’t have come out of the mess I was in. Today I am in good financial health, running my company in a very successful manner. The situation these days attributes directly to the past. But in the future, I don’t know if my bankers will be able to assist me the way they did in the past, had I to face another storm.

Yes, in today’s financial world, compliances are a must, but I always wondered why the Government doesn’t consider fixing a separate norm for assessing a non performing asset (NPA) of small and medium enterprises. Today the NPA norms are very simple. If your company has defaulted for a period of more than 90 days, you will be termed as a ‘defaulter’. Large houses can probably live with it, but I doubt if small businesses can, especially in our country. In some parts of the country we experience labour unrest, bureaucratic delays etc. for your imports. And from the moment you start digging to build up your business enterprise, so many unexpected problems surround you and the entrepreneur doesn’t realize that he is running out of time. In the meantime, this monster called “NPA” sets in after 90 days and if the loans have not been re-structured well in advance, you will be termed as a defaulter. When will this change? Will our country one day have a different set of norms for small and medium enterprises?

I have seen plenty of ups and downs in my life and I hope I don’t see it again. I do not relish going through it again. It is not easy today, to start a small business because nobody wants to fund you and it is becoming extremely difficult to raise funds. In the bargain, many budding entrepreneurs are not able to start enterprises and bring success to their families. There are even banks today who don’t entertain small loans. Where must these small businesses go? I am sure many of my readers have experienced this as well and in such situations where will they raise funds from?

Stay tuned for more on my business experiences.

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Responses to
 ipe peter says:
Dear JT, Your observation about the attitude of the present day bankers is correct. Previously, the three Cs were taken into consideration. Capital, Character and Capability of the person behind the enterprise were the key things. We will hope that better sense will prevail on the authorities in the days ahead. Ipe
 
 C.A.MAJEED ADVOCATE says:
WELL DONE. THIS IS A CLEAR POSITION HOW COMMON PEOPLE ARE FED UP WITH BANKS. ONLY LARGE BUSINESS GROUPS HAVE THEIR CHOICE AND THE BANKS ARE SET UP FOR THEM ONLY.
 
 K K Jagannivasan (Jagan) says:
What you have observed is true and it has come out of personal experience...
 
 Anandan says:
The next time I meet Vijayan Sir, I will tell him that JT is still nostalgic about 1994. But I always thought credit decisions have become easier and time bound post Credit Commitee system. Nice to see such a comprehensive collection of your thoughts. Deserves to be properly edited and collatted into a great book.
 
 Ambili says:
I came to your blog by chance. But the situation am going through is worse, I was going through net just for something that will give me an inspiration to continue my fight with life as I love life.I read lot, but nothing gave me inner feeling that I have to fight.But after reading your blogs, I felt like I also can win.I wanted to write my life story here, but don't want to make it public as still am a failure.So I mailed you the same.Ya, it is truly inspirational and your words are simple but have the power.. Thank you. Hope I can mail you one day that I also passed this exam with 110% marks.
 
 Paari says:
i would also request you, if you can to start a community of indian citizens, who are having good track record, good guarantee of property and meeting all the requirements but still dont get any fecility just because, the attitude of the banks, so called online interview/ Account holders personal appraisal without the account holders personal interview.
 
 francis says:
Dear J, India is going thru difficult times alike any other country. Still we are far better than europe or usa. More than 100 banks closed down in the last 5 to 10 years due to lending and the so called 'NPA' in us. The survival of our banks is not in lending big loans rather middle and low ticket loans; depends on the external dynamics it may change over the passage of time or our banks will face problems in the future. We need more nbfcs and virtual capitalists who are looking at the credibility of the person and the feasibility of the business idea. Franc Chn.